Speak with a Registered Agent: 1-866-223-2121

Speak with a Registered Agent: 1-866-223-2121

Interest Rate Increases Affect Annuity Products Differently


The annuity industry has been watching the movement of interest rates closely and expecting them to rise for years. Annuity pricing improves as interest rates increase, but it can be difficult for insurance companies to time their annuity strategies. It’s also difficult to time your annuity purchases based upon interest rates. A lot of people are claiming that rates have to increase soon. But in the Marketwatch article, “The interest-rate struggle with annuities,” Stan Haithcock points out that rates really don’t have to go up. They don’t often move much during presidential election cycles and the United States’ 10-year rates are higher than Japan, Germany, the U.K, Spain and many other civilized countries. We can only watch and see to know what will happen with interest rates and when they will eventually rise. Mr. Haithcock explains what happens to different types of annuity products when interest rates do increase.1

If you have a single premium immediate annuity (SPIA), your return is a combination of principal and interest. Higher interest rates will increase the amount of your lifetime payouts. But they may also change life expectancy tables in a way that works against you. The same benefit and drawback hold true when it comes to longevity annuities because their returns are an annuitization of your principal and interest. These longevity annuity products include deferred income annuities (DIA) and Qualified Longevity Annuity Contracts (QLAC).

Fixed rate annuities, also known as Multi-Year Guarantee Annuities (MYGAs), work in a similar manner to CDs. When interest rates increase, fixed rate annuity yields increase just like CD yields. Fixed annuities typically offer a higher yield than comparable CDs. Fixed Index annuities function differently than traditional fixed rate annuities because they are linked to a stock market index. Increasing interest rates typically mean higher returns from your indexed crediting strategy, but you don’t take advantage of 100% of the market gains. Fixed Index annuities also offer protection from market downsides. Whether or not you reap the benefits of an increasing market depends on what happens in the markets during the term of your indexed annuity product.

Income riders are contractual guarantees that are used only for income. They are attached to an annuity when it is purchased and cannot be taken as a lump sum or used for their interest. During a time of low interest rates, income rider percentages are often high. But Mr. Haithcock points out that these rider percentages are not actually yield and reminds consumers that they can only be used for income. Variable annuity income riders are significantly affected when interest rates change. Income-rider pricing is better when interest rates increase. This holds true for fixed annuities as well.

Low interest rates have made it difficult for people that seek guaranteed rates, principal protection and guaranteed lifetime income*. These things are out there, but higher interest rates would make for better offers. However, Mr. Haithcock points out that trying to time your annuity purchase for when interest rates hypothetically rise isn’t a wise decision either. You have to consider the payments you lose out on while waiting and the potential that rates don’t even rise in the time you hoped. Increasing interest rates affect different types of annuity products in different ways. It’s important to know how they might change your current or potential annuity yields and payouts.

Written by Rachel Summit

Follow Rachel, aka Finance Mama, on Twitter and Google+

*Guarantees of annuities rely on the financial strength and claims-paying ability of the insurance company that issues them. Lifetime payouts may be a benefit of the base annuity contract, or may be offered through the additional purchase of a lifetime benefit rider.

1. Haithcock, Stan. “The Interest-Rate Struggle with Annuities.” Marketwatch, July 28, 2015. https://www.marketwatch.com/story/the-interest-rate-struggle-with-annuities-2015-07-28?page=1

If you cannot access this article on line, call 1-866-223-2121 to request a copy.

This web page has been reviewed for compliance.
Document reference:

For more information about the product mentioned in this article contact us here:

Newest Blog Posts

Information Request Form

If you have questions or would like more information, please complete this form and a licensed professional will be happy to help. For the fastest response, please select 'Phone' as your Contact Preference.

By providing your information and clicking 'Submit' above, you acknowledge that you have read and agree to this site's privacy policy. You also provide your consent to be contacted at the email address or phone number provided above (including any wireless number) by licensed agents or representatives from or on behalf of AFYI Holdings Group, LLC and other companies to provide the information requested and/or offer annuities or financial products. You understand that these calls or SMS messages may be generated using an automated telephone dialing system, a pre-recorded message, or artificial voice. Consent to receive such messages is not a condition to purchase any goods or services. You may opt out at any time by following the instructions in the messages you receive.  Receiving quotes and information through our website is free, and you are under no obligation to purchase any goods or services as a result of this request. You affirm that you are the subscriber of the provided telephone number or that the subscriber authorized you to provide the number. Message and data rates may apply. AFYI Holdings Group, LLC is committed to respecting your privacy and adhering to all applicable laws and regulations, including the Telephone Consumer Protection Act (TCPA).