You may be familiar with the standard annuity products, such as variable or fixed annuities. With variable annuities, your money is invested directly in the stock market; you choose from a range of investment options, similar to a family of mutual funds. However, like other forms of stock market trading and investing, your money is exposed to risk. 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.

Insurance companies set out to satisfying consumers’ wishes for higher returns along with the safety of a fixed annuity – in the 1990s, they introduced the equity-indexed annuity. Equity indexed annuities, by combining the increased returns of a variable annuity with the stability of a fixed rate annuity, are a great savings product if you are looking to have solid interest returns and the peace of mind offered by minimized risks.

Like all annuities, you establish an equity-indexed annuity, also called a fixed-indexed annuity, with a single premium deposit of principal. In return for this premium, the issuer of the annuity agrees to tie 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. One common method is the point-to-point indexing method, where the interest is credited by comparing the difference between the index values from one date to another. Usually, the indexing term consist of one year increments and is begun on the annuity’s issue date.

The realities of an equity-indexed annuity are simple – you will never lose your original premium or any of your credited interest earnings. You are guaranteed a minimum interest rate in case the market does poorly, usually between 1-3%. Equity-indexed annuities usually have a cap, which sets the upper limit of how much you can earn. For instance, if the indexing method shows a gain of 11% and the cap on your equity-indexed annuity is 8%, you will receive 8%. Even with an earnings cap, you have the opportunity to receive returns that are typically higher than CDs, saving accounts or money market accounts, over time.

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