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Annuity Rates

Understanding Annuity Rates: A Guide to Comparing and Evaluating Your Options

Annuity rates determine the growth of your investment and the income you’ll receive during retirement. Whether you’re evaluating fixed, indexed, or variable annuities, understanding how rates are calculated and what influences them is essential to making informed decisions.

This guide explains the components that shape annuity rates, how they vary by product type, and what to look for when comparing offers. From base interest to participation rates and caps, annuity pricing is nuanced, but with the right information, you can assess opportunities with clarity and confidence.

1 | What Are Annuity Rates?

Annuity rates reflect how much your money will grow during the accumulation phase or how much income you’ll receive during the distribution phase. Depending on the annuity type, rates may be fixed and guaranteed, indexed to a market benchmark, or dependent on sub-account performance.
  • 1. Fixed annuities offer a guaranteed interest rate for a set period.
  • 2. Indexed annuities credit interest based on the performance of a market index, subject to a cap, spread, or participation rate.
  • 3. Variable annuities do not have a fixed rate but depend on market-based investment performance.

For a helpful breakdown of what influences annuity rates and how they respond to market conditions, see Kiplinger’s guide on how interest rates affect annuities.

2 | Key Terms to Know

TermDescription
Guaranteed RateThe fixed interest rate offered in a fixed annuity
Cap RateThe maximum rate of return in an indexed annuity period
Participation RateThe percentage of index gains credited to your annuity
SpreadA deduction from the index performance before calculating the credited interest
Payout RateThe percentage of your contract value paid as income annually
Knowing how these terms apply to your contract allows you to evaluate both the growth and income potential of each annuity type.

3 | How Rates Are Set

Insurance companies determine annuity rates based on a variety of economic and product-specific factors:
  • 1. Interest rate environment: Rates often follow U.S. Treasury yields or bond market performance.
  • 2. Contract duration: Longer terms typically offer higher guaranteed rates.
  • 3. Issuer's reserves and risk models: Carriers may offer higher rates to stay competitive.

For example, when market interest rates rise, insurance companies may increase fixed annuity rates to attract new investors. The Insurance Information Institute offers a plain-language overview of how these rates align with larger market trends.

4 | Comparing Annuity Rates

Because rates vary widely between providers and products, it’s critical to review:
  • 1. Initial guaranteed rate period (e.g., 3, 5, or 7 years)
  • 2. Renewal rate policies (how rates change after the initial term)
  • 3. Surrender charges and contract length
  • 4. Bonuses or enhanced rates for larger contributions
Don’t evaluate rates in isolation—consider total contract terms and how they align with your retirement goals.

5 | Frequently Asked Questions

Not always. Many fixed annuities guarantee a rate for an initial term and reset afterward based on market conditions.
Variable annuities do not have guaranteed rates. Returns depend on the performance of the underlying investment portfolio.
Competitive rates change regularly. It’s best to compare offers from multiple carriers and review our latest updates on fixed annuity rates.

6 | Next Steps

  • 1. Learn about the products behind these rates: What Is an Annuity?
  • 2. Understand how fixed annuities function: Fixed Annuity Overview
  • 3. Explore growth-linked options: Fixed Index Annuities

Rates are one of the most important aspects of any annuity contract. By understanding the structure behind these figures and keeping up with changes in the market, you can evaluate offerings with greater confidence and precision.

For current rates, personalized illustrations, or help interpreting terms, consult a financial professional.

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