A credited rate is the interest rate an insurance company applies to your annuity contract during a specific period. For fixed annuities and MYGAs, the credited rate is guaranteed for the full contract term. For other annuity types, the credited rate may reset annually based on index performance or the insurer’s declared rate.
How Credited Rates Work in Fixed Annuities
When you purchase a MYGA, the credited rate is locked in from day one. If you buy a 5-year MYGA at 5.50%, that rate is applied to your full balance every year for five years. Your principal grows by that amount, compounded annually, with no exposure to market losses.
The credited rate is not the same as the yield to maturity or the effective annual rate on other financial products. It is the rate the insurer guarantees it will credit to your contract, and it is the primary number buyers compare when shopping for fixed annuity rates.
Credited Rate vs. Renewal Rate
After your initial guarantee period ends, the insurer may offer a renewal rate (also called a “new money rate”). This renewal rate is typically lower than competitive new-money rates available from other carriers, which is why many annuity owners choose to do a 1035 exchange at maturity rather than accepting the renewal.