How To Evaluate Fixed Annuity Rates

Fixed Annuity Rates are rates at which you are paid when you own a fixed annuity. Annuity is a financial contract in form of an insurance product. You can buy an annuity in lump sum or make premium payments over time. In return, the insurance company will pay you a certain amount of money every year until the day you die. Fixed rate annuity offers you a constant source of income that will remain in place regardless of your economic circumstances. That said, fixed annuities do have some drawbacks. That is why you should evaluate for yourself if fixed annuity is right for you.

Understanding Fixed Annuity Rates

The key difference between fixed annuities and other types of annuities is that the rate of payment remains constant. The term also applies to annuities where payments increase at a constant rate. As with other annuities, you can choose a fixed annuity that will continue paying your spouse in the event of your death until he or she dies as well.

Fixed annuities can be divided into two categories:

  • Immediate fixed annuities - in this category, the payments start a year after you buy the annuity. Immediate fixed annuities usually require you pay all the money up front. Your fixed annuity rates are estimated based on your age, the age of your spouse and how much money you are willing to invest.
  • Deferred fixed annuities - in this category, the payments won't start until a certain date or until you reach a certain age. One of the biggest benefits of deferred fixed annuities is that the money placed in the annuity will be tax-free. This allows you to save more money than you would otherwise be able to. Furthermore, because of the interest rates, their value will increase every year. However, the federal laws stipulate that if you withdraw any money while you are less than 60 years old, you will have to pay a penalty equal to 10% of your income tax.

In addition to everything outlined above, both types of fixed annuities do have some significant drawbacks. First and foremost, the insurance companies will charge you a variety of management fees. Essentially, they allow the insurance company to earn profit off of maintaining your account and keeping it secure. The fees are deducted directly from the annuity every year, and they can be fairly substantial, reaching as high as 2.35%.

If you have your fixed annuity for less than a year, you have a right to change your mind and sell it back to the insurance company. However, you will be charged a fee that ranges from 2-8%. In most cases, the fee tends to fall in the upper portion of the spectrum.

Finally, once you die, your heirs will owe IRS income taxes on any gains the annuity made up to this point.

Choosing the Best Fixed Annuity Rates

If you decide that the benefits balance out the drawbacks, you will want to find fixed annuities with the best fixed annuity rates possible. The rates will go up and down during the course of the year, echoing general interest rates. Look at the yearly patterns and see when the interest rates are usually highest. If you have any reason to believe that the interest rates will drop soon and won't get back up within a year, you should consider buying it now.

Before choosing an insurance company, make sure it is a reputable institution. Look it up with Better Business Bureau to see if it has any history of customer complaints. You may also want to consult the companies' financial ratings. The ones with A ratings are more likely to remain stable, insuring that your annuity will continue to be paid no matter what happens to the world economy.

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