No matter what it is, a home loan, a savings account, or even gas prices, everyone wants the best rate. While it’s easy to pull up to a few gas stations and compare the price per gallon to figure out which rate is is the best deal, comparing rates for fixed annuities isn’t as easy. There are many factors to consider and the best rate does not always equal the highest yield.
Factors to Consider
There are several things to think about when beginning to compare the best rates on a fixed annuity. From where to buy to what the terms are, are just as important as what the interest rate is.
- Where to buy. A reputable insurer is imperative when purchasing an annuity. Consider the recent tumble of the market and banking fall out. Many companies went under and while you might have some insurance on your account, some of your money could be lost if the company you choose to invest with goes out of business. While smaller companies might offer better rates, the security of a larger established company is the best option.
- When to buy. While it’s nearly impossible to predict dips and peaks in the market, it’s beneficial to purchase a fixed annuity at the start of a financial downturn. As others with variable rates will lose money, your fixed rate is guaranteed. However, it’s not necessary to wait too long for perfect market conditions. As a fixed rate annuity is meant to be a long term investment, the longer you own it the better.
- Contract length. An annuity is a retirement savings tool, so it is intended to be a long term investment option. Often you can get a better deal on a fixed annuity by entering into a longer term contract with your insurer. They want your business and make money the longer they manage your money, so offer better deals for longer contracts.
- Contract flexibility. You might get a higher interest rate with a more rigid contract. If you are looking for more flexibility in your contract you will often have to sacrifice a better rate. Think about a fixed rate annuity as a long term, permanent investment and not as a means for withdrawing cash and the flexibility of the contract won’t matter as much.
Related Factors to Find the Best Fixed Annuity Rates
There are other related factors to consider when finding the best fixed annuity rates. From knowing what fees might be involved to what the terms are for withdrawal are important in comparing rates.
- Guarantee Period. Make sure you read the fine print on the guarantee period. When you see something that says 8% for 8 years, be sure that that the terms are clear. Often in the fine print the percentage guaranteed is not for the whole term stated and may drop at a gradual rate over the term of the guarantee period.
- Withdrawal/Surrender charges. All insurers charge withdrawal or surrender fees should you need to take money from your account before age 59 ½. Looking at how much those fees are and how long the surrender period is is important in comparing the rate. More flexibility and less expensive charges might be worth a lower interest rate.
- Provisions for Illness. Should you become ill or disabled you will want to know if there are provisions for being able to access your annuity. A lower interest rate might be better in the long run if the annuity you choose has low rates or no penalties for withdrawal of funds in the event of illness or disability.