Indexed interest Potential


The benefits of fixed indexed annuities (FIAs) are many. But one area you might not be aware of is the index interest potential of an FIA. Because of how the FIA works, it provides several choices for its owner. First, you can select an index or several indexes which link to the earnings of your annuity. An index does follow market trends, but your money is not in the market directly.

Additionally, the safety of an FIA means you have principal protection. In fact, even when your FIA index drops, your principal balance remains in-tact. However, it is possible for your annuity to have a reasonable rate of return** when the index you choose is up. In addition, you can also select how much of your FIA you want to connect with different indexes. For example, you might tie 10% of your money with one index, 20% to another, and 70% to a third.

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Crediting Method

Another choice you have with your FIA: crediting method. When you are due indexed interest, the FIA insurance company uses a formula to provide the payout. In most cases, you have a choice of when to receive that money. For example, you may choose to have your credit applied monthly. Or, you might select an FIA that does value averaging over a period of time. Other FIA might look at the difference in rates between one date and the same date the next year.

In addition, an FIA could use a set number of days in order to explain the formula for crediting interest. Because there are many choices when it comes to how your potential interest is credited, we encourage you to learn more. Reach out to attend an educational seminar at no cost to you.

Remember: Safety Comes First

One of the big benefits of fixed index annuities is your money remains safe. Therefore, if your chosen index happens to drop in value, your principal doesn’t. In fact, by law, the insurance company has to have reserves to cover your annuity claim. With an FIA, you can get reasonable rates of return**, yet keep your money safe from losses in the market. Your insurance company insures you don’t lose your nest egg. For many people, this concept offers peace of mind.

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Potential Growth Benefits of Fixed Indexed Annuities

So, how is potential indexed interest calculated? To start, you choose one or more indexes that your annuity links to. Our team at Orfin & Associates can help you understand your options. Then, a crediting method is set by the insurance company. This will let you know how and when you’ll see any potential earnings. Additionally, your FIA contract will describe how your interest rate or potential rate will work.

Once the growth in your FIA hits a certain mark, you may receive indexed interest for that time period. However, if in that time the index goes down, your FIA value remains stable. Importantly, cap, spread, and the participation rate also impact your earnings potential. So, be sure to get all these details before you purchase an annuity. When we meet with clients at Orfin and Associates, we make sure to explain how it works. Indeed, it is important for you to understand your retirement options. Join us at one of our upcoming seminars or webinars to get the information you need.

Because your money is protected by an insurance company, an FIA has some security. In fact, the insurance company must have reserves to cover its claims. Therefore, the protection of your money is due to the insurance company’s stability. The benefit, of course, is your money is safe from market dips.


There are a few keywords found in most FIA contracts that should be understood. These terms affect your indexed interest potential with your annuity. Of course, each product term will be different. So be sure to learn more about your specific agreement.

CAP – FIAs offer protection of principal. In return, you may have a cap on how much your earnings can grow. Reasonable returns**, and keeping your money safe. That’s the idea behind a cap.

Participation Rate – Sometimes, there will also be a limit to how much of the growth your FIA will have. In other words, what % of the increase applies?

Spread – Some FIAs look at the difference in growth to credit your annuity contract. For example, if the growth is 10%, and your spread is 4%, your annuity would see a 6% credit. (10% – 4% spread = 6%)

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