Things change constantly and with longer held assets like annuities it is easy to earn less than market interest. As consumers we only associate interest as just that, interest. But there is a huge difference between interest earned with insurance company annuities and interest earned at banks.
Banks use as a reference point for interest, the Federal Reserve Discount Rate, which is volatile in the sense it will raise and lower generally several times during the course of a year. As these rates change so will bank interest rates and mortgage rates for home financing.
Insurance companies use a different standard for setting their crediting rate, they use the 10 Year US Treasury yield. The Treasury rate is always based on long term yield and is not affected by the Federal Reserve Discount Rate.
But we consumers only want the highest rate we can earn and when we find ourselves in the situation where we are earning a lower than desired interest rate, how can we as investors fix it? If you have an older annuity it is still possible you may also have an annuity with a surrender penalty in place. How do you move your money to a higher rate of interest and not lose any of your account to these surrender fees?
The very best method is to offer your annuity back to the insurance trade! My guess is you didn’t even know this was an option. But, in fact, it is, and there are two different ways of doing it:
1. Call your current company and tell them you are not happy and you want a higher interest rate. They have several products in “reserve” for this situation and will do everything possible to keep your money invested with them. Explore the options but do not make a decision until you have looked at option 2.
2. Call your agent or even better call several agents for annuity quotes and tell them you want a new policy. These agents will do anything to make a sale and you can often negotiate a “front end bonus” where the cost of moving your money will cover any remaining surrender penalty.
To move an annuity and to keep your tax liability intact be sure and use an IRS 1035 exchange. The company you use will provide you with the correct form.
Take an active management role with your annuity so you can earn the highest level of interest possible.
As with all important decisions make certain you fully understand all aspects of your decision and it is always suggested you seek competent legal and tax advice before making any important decision