Traditional fixed or variable annuities used to be the only kind of annuity products available to consumers. Offering steady, respectable interest rates, many people were drawn to fixed annuities. However, fixed annuities’ interest rates were not as competitive as the returns available in the stock market, so some investors shunned them. Variable annuities have the potential of big returns, but also the potential of big losses – even losses of your original principal. Introduced in the 1990s, an indexed annuity combines the safety of fixed annuities with the higher-than-average returns of variable annuities. As a result, indexed annuities, also called fixed-indexed or equity-indexed annuities, have exploded in popularity.

With an indexed annuity, your premium is never invested directly in the stock market. Instead, the money is held by the issuing insurance company, and once a year depending on the crediting method, interest is applied. There are a number of different methods companies use to figure the amount of interest, the most common being point-to-point with an annual reset. Indexed annuities usually credit interest annually – the annual term being the period of time between the indexed annuity issue date and each anniversary thereafter.

Indexed annuities are considered safe and principal protected because your account value can never be lowered. Also, an indexed annuity has the protection of a minimum guaranteed interest rate – so even if the market sinks lower every year, you will continue to earn the minimum rate. Most indexed annuities are also subject to a cap, which limits your earnings to a specific percentage. Tradeoff for the cap is the minimum guaranteed interest rate – there is peace of mind in knowing you’ll never lose any of your principal or interest earnings due to an unstable stock market.

Are you interested in learning more about an indexed annuity? There are a variety of resources online that can explain indexed annuities comprehensively. Visit BuyAnnuitiesOnline.com or call one of their annuity Specialists at 1-800-994-3023 to learn more about indexed annuity products.