Are Fixed Annuities Rates Better than Other Rates?

Annuities rates fluctuate as they are influenced an determined by the rates of interest on other fixed investments (e.g. government bonds, corporate bonds, mortgages). But the redeeming feature is that whenever the interest rates decline, the return on fixed annuities rates could be lot more attractive than any other returns offered by fixed investments. The fixed annuities rates benefit from distinct advantages:

•             The rate of interest of fixed deferred annuities rates can guarantee a minimum return during the tenure of the contract. For instance, if you opt for MYGA (a multi-year guarantee annuity) that locks in the prevailing interest rate for a period of five years, it will fetch you competitive annuities rates for the entire contract period. After the lapse of the contract years, you will continue to receive the minimum rate, regardless of market conditions.

•             Yet another benefit is the annuities rates are tax-deferred. In other words the interest earnings on the annuity’s principal amount will compound without the liability of current taxes. This is unlike many fixed income investments including Certificates of Deposit that are taxed even as you earn the interest. Assuming you invest the interest earnings of a CD, you are liable to pay income tax annually even when you don’t withdraw the interest. This lessens the actual rate of return on your fixed interest investments.

•             You must bear in mind that the annuities rates offered by several annuity companies include interest bonuses during the first year. This additional income could inflate the yield over the contract period. But premature withdrawals from annuities could mean surrender charges that will negate the bonus advantage. Annuities that entail bonuses may carry higher charges and extended surrender periods when compared with annuities that are without a bonus.  This is to say, any increase in annuities rates will often have a nullifying feature and in this instance, it is typically an extended surrender charge period. As a result, you will desire to keep the annuity for the entire term.

If you so choose, you can also defer withdrawing money out of your annuity and thus delay income tax payment. You can even manipulate your payments to make them match to periods when you will be in a lower marginal tax rate .  Besides, you can occasionally defer receiving payments from annuities during your lifetime and generate more funds for your heirs. This will mean the inheritors will remit income tax as per their respective tax bracket. You certainly can not do this type of management with other interest bearing investments on which the income is taxable as earned (not as received).  Because of this, annuities rates of a specific percent are worth more than other investments offering the same percent but packing the tax flexibility.

You should exercise caution and not get tempted if the annuities rates are inordinately high. It is evident that if an annuity pays abnormally high rates, that annuity company is in dire need of funds and things are not well. It will be prudent to find out the financial rating of different annuities before proceeding.

It is essential that you opt for an annuity company that is financially stable and not be driven by an impulse towards a company that offers higher annuities rates. Annuity advantages and guarantees of an insurance company are dependent on its solvency and the ability to promptly settle claims. You can seek guidance from either an independent insurance agent or a competent finance professional before exercising your investment options.