Index Crediting Method
The formula a fixed-indexed annuity uses to measure index change and calculate interest.
The crediting method defines how the index's movement is measured for interest. Common methods include annual point-to-point (comparing the index on two dates a year apart), monthly sum, and monthly average. The method, combined with caps, participation rates, and floors, determines credited interest.
Different methods can produce different results in the same market, so understanding the method matters when comparing contracts. Terms are set by the issuing insurance company.
Example
Under an annual point-to-point method, only the index level on the start and end dates matters — daily ups and downs in between do not change the result.
This definition is for general educational purposes only and is not financial, tax, or legal advice. Tim Hartle is an independent insurance professional. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company and are not FDIC insured. Rules and product features vary by situation and by state. Please consult a qualified advisor about your own circumstances.
Related Terms
Fixed-Indexed Annuity
An annuity that credits interest tied to a market index, with a floor that protects against index losses.
Cap Rate
The maximum interest a fixed-indexed annuity will credit for a given index period.
Participation Rate
The percentage of an index's gain that a fixed-indexed annuity uses to calculate credited interest.
Floor
The minimum interest a fixed-indexed annuity will credit, protecting against index losses.
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Annuities are insurance contracts. Guarantees, including guaranteed lifetime income benefits where available, are subject to the claims-paying ability of the issuing insurance company. Product features, fees, withdrawal restrictions, and surrender charges vary by contract.