There are various types of annuities and information about annuity interest rates on the Internet is galore. The most important information required while deciding an annuity plan is about the annuity interest rates. Annuity interest rates vary on the type of annuities and the period of investment. As a thumb rule, the longer you keep your money with the annuity company, the better return you get. There are three broad categories of annuity – Fixed Annuity, Variable Annuity and Equity-Indexed Annuity.

Fixed annuities are most popular since they provide a stable and secure form of return after your annuity period matures, and help grow your savings. They also come with tax benefits. Their rates of interest are comparatively lower than other types of annuities as security is highest. A ‘variable annuity’ is a more complex type, where your money is eventually invested in a portfolio of mutual fund type accounts. The rate of interest is variable and changes over time, and hence, the risks are higher here. The third type is called ‘equity-indexed annuity’, which is a fusion of the earlier two. This type of annuity considers three main types of interest rates to determine the return to the annuitant; hence, you need to understand the details about annuity interest rates. The types of annuity interest rates can broadly be classified as –

Participation Rates: This group of rates determines how much of the investments’ increase or performance in the market will be used to compute the index-linked interest rate. For example, if the participation rate were 80 percent and the particular index in which you invested increases by 10 percent, the return credited to your annuity would be 8 percent (10 x 80 = 8). Hence, your contribution has participated 80 percent in the overall growth in that industry sector where your money is invested. You can choose your participation ratio. The more the participation, the more will be the return (or risk).

Interest Rate Caps: Some equity-indexed annuities set a maximum rate of interest that the equity-indexed annuity can earn. If a contract has an upper limit, or ‘cap’, of 6.5 percent and the index linked to the annuity gained 8 percent as discussed before, only 6.5 percent would be credited to the annuity. It sounds not lucrative, but comes with better chances of getting that cap, since the experts feel the chances of good performance is high.

Margin/Spread/Administrative Fee: The index-linked interest for some annuities is determined by subtracting a percentage from any gain in the index. This fee is sometimes called the “margin,” “spread,” or “administrative fee.” In the case of an annuity with a “spread” of 3 percent, if the index gained 9 percent, the return credited to the annuity would be 6 percent (9 - 3 = 6).

This is a simple representation of interest rates calculation. However, the details are endless and would require in-depth studying for a few days if you truly want benefit. For more information on interest rates of annuities and to understand what is good for you, Click here or call www.AnnuityLibrary.com at the toll-free number 1-800-998-4056.