Monthly Averaging Interest Crediting Option

Different equity index annuity accounts will credit the interest accrued by the index differently.  One common method of determining the interest rate is monthly averaging.  Monthly averaging smoothes the volatility of market interest rates, leveling out the upward and downward movements of the market.

The smoothing effect allows you to minimize the effect of big market drops.  On the other hand, this also reduces the benefits of large market upswings.  By averaging, you also position yourself at a disadvantage if the market increasing continually for multiple years.  The equity interest rate that you are receiving on your indexed annuity account will be lowered by such a market movement.

Many annuity contracts will provide you the option of either a participation rate or cap.  See Equity Indexed Annuities Cap and Participation Rates for more information, or refer to the main page on equity index annuity accounts.