The rates for annuities with the same term vary significantly. You will earn far less interest than you could if you do not shop around. Unfortunately, many local annuity agents only represent a few or even a single annuity company. In this article, you’ll learn how to find the best fixed-annuity rate and how fixed annuities stack up against other options.
Annuity Background A fixed-rate deferred annuity (also known as MYGA) is comparable to a bank certificate of deposit. It also pays a fixed rate of interest for a specified period. Unlike certificates of deposit, annuities are tax-deferred. Annuities from insurance companies are not federally insured like CDs, but state-mandated guaranty associations protect investors. Although the rate is not the only consideration when selecting an annuity, it is the most important factor when all other elements are equal. Here are the most important considerations.
How Much Can You Borrow While the Policy is in Effect? If you have reinvested interest, you will have the option of receiving your principal plus all accrued interest at the end of the term. You can then withdraw the proceeds in cash and pay taxes on the accumulated interest (assuming the annuity is not qualified). But suppose you reinvest the money in a new annuity with the same insurer or move it to a different insurer through a 1035 exchange. In that case, you can continue to postpone paying all taxes. What if you need some or all of your money back before the end of the term? Most annuities permit penalty-free partial withdrawals, so there may not be a problem if it’s a portion of your money. In many cases, you can take out as much as 10% of your contract’s value each year without incurring any fees. However, some annuities lack this feature and, as a result, may pay a higher interest rate than similar annuities that provide more liquidity. The insurer will charge you if you withdraw more money than is permitted by the contract during the penalty period. These surrender fees and their application vary considerably from company to company. However, they typically begin at 7-10 percent of the excess withdrawal amount for the first year and decrease annually. Some annuities let you give up your payments without a penalty if you become disabled, get a terminal illness, or move into a long-term nursing home during the term. How You Could Shop for the Best Deal Visit a local financial advisor or independent agent. They will likely only present you with products from a few insurers, if any. You typically only see the annuity product(s) they are accustomed to offering and want you to purchase. The product selection is typically even more limited when working with a bank or broker-dealer. Their agents can only sell the limited number of annuity products made available by the bank or broker-dealer. Purchasing an annuity from a local, in-person salesperson reduces the likelihood of obtaining the best interest rate. You can compare annuities from dozens of insurers, rates, and other features when you shop online. In addition to the AnnuityAdvantage database, there are several other reputable websites to get relevant information from. Using a site that compares rates, you can easily avoid bad deals and find the best rate from a reputable insurer. When using a website, there are some things to keep in mind. An annuity agent’s website does not imply they have the experience or resources to conduct business in all states. Look for a site where the insurance agency is licensed in all states and represents numerous insurance companies. After comparing rates and making initial comparisons, you can speak with an agent, explain your goals, and determine which products meet your requirements. Also, inquire about ongoing service after the purchase of the annuity. Long-term relationships are essential. Annuity agent services should continue beyond the sale of the annuity. A capable agent should perform yearly reviews and inform clients of any AMs. They should also assist with Best rating changes with the issuing insurance company, beneficiary changes, death claims, and annuitization if desired. The agent also discusses with the client before the initial guarantee period about potential renewal opportunities with the current insurance provider or better prices with other companies. When you call with questions, you should be able to talk to a real person.
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Bio:
I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.
Disclosure:
Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice filed, or is excluded from notice filing requirements. BWM does not accept or take responsibility for acting on time-sensitive instructions sent by email or other electronic means. Content shared or published through this medium is only intended for an audience in the States the Advisor is licensed in. If you are not the intended recipient, you are hereby notified that any dissemination, distribution, or copy of this transmission is strictly prohibited. If you receive this communication in error, please immediately notify the sender. The information included should not be considered investment advice. There are risks involved with investing which may include market fluctuation and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making an investment decision.
