|All About Annuities|
|Rates and Returns|
How annuities calculate interest rates, surrender charges and withdrawals is of great importance in understanding the benefits of one product over another. Our comprehensive database provides you with the details of how each policy handles these values and what impact they have the annualized returns and fees.
When an annuity policy is issued the company sets the first year interest rate. This rate is guaranteed for the first policy year and we refer to it as the current rate. The base rate is that interest rate which the company projects it will pay in the second year and thereafter. This base rate is also referred to as the "renewal rate" is not guaranteed. In fact, some companies pay "renewal rates" which are less than the originally projected base rate.
Note that the difference between the current rate and the base rate is referred to as the bonus rate.
We use the Current Rate (for the first year) and the Base Rate (for each year thereafter) in our formula to calculate the projected "Account Values."
Surrender charges apply for a specific number of years. We calculate the projected Account Value for the number of years the surrender charges exist. For example; if the surrender charge of the policy lasts seven years, we calculated the projected Account Value for only seven year.
This is because once the surrender charge expires, the interest rate is dropped to the contractual guaranteed minimum and the policy values are usually transferred to another annuity. To continue projecting the accumulated value beyond this point has little meaning.
Most annuities allow you to withdrawn interest from your annuity without penalty. Some annuities allow you to withdraw interest without paying a penalty at the end of the policy year or after 30 days, then as earned.
Most annuities allow you to withdraw up to 10% of the account value before a surrender charge or withdrawal charge is applied. You need to know how the Withdrawal or Surrender Charges apply before buying an annuity policy to save yourself unnecessary expenses.