Familiar with immediate annuities or deferred annuities? There are other annuity products out there that either align your money with a particular market index or invest your money directly into the stock market. With a variable annuity, your money is invested directly in the stock market and you choose from a range of investment options, similar to mutual funds. However, like other forms of stock market trading and investing, your money is exposed to risk and your principal is not protected against the possibility of loss. A fixed rate annuity product is safe and has a set interest rate, which may be too low for some looking to maximize their savings. A fine balance between variable annuities and fixed rate annuities are equity-indexed annuities.

In the 1990s, insurance companies set out to satisfy consumers’ wishes for higher returns along with the safety of a fixed rate annuity – so they introduced the equity-indexed annuity. Equity indexed annuities, by combining the potential high returns of a variable annuity along with the stability and safety of a fixed rate annuity, are a great savings product if you are looking to have solid returns and the peace of mind offered by not investing directly in the stock market.

Like all annuities, you establish equity-indexed annuities, also called fixed-indexed annuities, with a single premium or principal deposit. In return for this premium deposit, the issuer of the annuity agrees to align your interest earnings to a particular stock market index, such as the S&P 500. Your money is not directly invested into the market; instead, the interest is calculated using an indexing method formula. One common method is the point-to-point indexing method, where the interest is credited by comparing the percentage change between the index values from one date to another. Usually, the indexing term consists of one year increments and is begun on the equity-indexed annuity’s issue date and each anniversary thereafter.

The realities of equity-indexed annuities are simple – you will never lose your original principal or any of your credited interest earnings. You are guaranteed a minimum interest rate in case the market flounders, usually between 1-3%. Equity-indexed annuities usually have a cap, which sets the upper limit of how much interest you can earn during each indexing term. For instance, if the indexing method shows a gain of 12% for the year and the cap on your fixed-indexed annuity is 10%, you will only receive 10%. However, you are likely to receive average returns that are higher than CDs, savings or money market accounts.

Interested in learning more about equity-indexed annuities? Call the Annuity Specialists at BuyAnnuitiesOnline.com at 1-800-994-3023. They are able to prepare a free personalized recommendation for you.