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Current Rate of Interest

The current interest rate (excess rate) varies with the insurance company’s returns on its investment program. Some annuity contracts revise the current rate on a monthly basis; others change the current interest rate only one time each year.

As mentioned earlier, today’s low credited interest rates in fixed annuities has caused a major decline in sales. Rates for 2012 however, are even lower than a year ago. According to the Fisher Index (See Table 3.3), the Index tracks average fixed annuity rates over one-year periods and “CD” type of annuities.

For Example: As of February 7, 2012, the average first year fixed rate for a fixed annuity on the high norm was 2.84% and the low norm was 0.89%. That's for nearly 590 products issued by almost 75 carriers.

But a similar pattern holds for five-year CD rates and treasury bonds, with interest rates in both products lower than a year ago. So fixed annuity rates are tracking with trends in the overall environment.

In February, fixed annuity rates did start to tick up. Also, a few carriers have bumped up their fixed annuity crediting rates by 10 or 20 basis points for competing reasons. Even so, only a handful of fixed annuities pay above 3 percent, and the highest-paying five-year fixed annuity was crediting 1.74 percent at the end of February, according to the Fisher Annuity Index.

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