Last updated: April 12, 2026 | By Jason Caudill, MBA | Reviewed by the MyAnnuityStore Editorial Team
Monthly Sum Crediting Method Explained
The monthly sum crediting method (sometimes called “monthly cap”) is a popular way fixed index annuities calculate interest. Instead of measuring the index value once a year like the annual point-to-point method, monthly sum measures it twelve times, once per month, and adds the monthly returns together at the end of the year.
The catch is that each positive month is subject to a cap, while each negative month is counted in full. This creates a specific risk-reward profile that performs beautifully in steady bull markets and poorly in choppy or volatile ones.
How Monthly Sum Crediting Works
On each of your contract’s twelve monthly anniversaries, the insurance company records the percentage change in the index (usually the S&P 500) since the previous month. That monthly change is subject to a monthly cap, typically somewhere between 1.5% and 3.0%.
At the end of the year, all twelve monthly figures are added together. If the sum is positive, you earn that amount. If the sum is zero or negative, you earn zero for the year (your principal is protected).
The formula looks like this:
Annual Credit = SUM of (capped monthly return) for each of 12 months
Where each month’s return is calculated as:
- If the monthly return is positive: capped at the monthly cap (e.g., 2.0%)
- If the monthly return is zero or negative: counted in full
Monthly Sum Example: Steady Bull Market
Assume a 2.0% monthly cap and twelve months of modest positive returns. Imagine the S&P 500 returned between 1.0% and 2.0% each month (nothing exceeds the cap). The annual credit is simply the sum of each monthly return.
| Month | S&P 500 Return | Capped Return (2.0% cap) |
|---|---|---|
| Jan | +1.5% | +1.5% |
| Feb | +1.2% | +1.2% |
| Mar | +1.8% | +1.8% |
| Apr-Dec avg | +1.0% each | +1.0% each |
| Annual Total | +13.5% | +13.5% |
In this scenario, your monthly sum credit is 13.5%. That beats what an annual point-to-point contract with an 8% cap would have credited in the same year. Monthly sum shines when the market grinds higher in small, steady increments.
Monthly Sum Example: Choppy Market
Now imagine the same index finishing the year flat, but with one bad month mixed in. The asymmetry of the monthly cap starts working against you:
| Month | S&P 500 Return | Capped Return (2.0% cap) |
|---|---|---|
| Jan-Sep (9 months) | +2.0% each | +2.0% each (capped) |
| Oct | -8.0% | -8.0% (no floor) |
| Nov-Dec | +1.0% each | +1.0% each |
| Annual Total | +12.0% (raw) | +12.0% |
Wait, that still came out to +12.0%. Let me show the failure mode more clearly:
| Month | S&P 500 Return | Capped Return (2.0% cap) |
|---|---|---|
| Jan-Aug (8 months) | +3.5% each | +2.0% each (capped at 2.0%) |
| Sep | -12.0% | -12.0% (no floor) |
| Oct-Dec | +3.0% each | +2.0% each (capped) |
| Raw Index Total | +25.0% | +10.0% |
The index finished up 25%, but the monthly sum method credited only 10%. Every up month got capped at 2%, but the single 12% down month was absorbed in full. The annual point-to-point method with an 8% cap would have credited the full 8% because it measures only once per year.
When Monthly Sum Wins
- Steady markets with small monthly gains. If every month gains 0.5% to 2.0%, you capture all of it. An annual point-to-point cap of 8% would have capped you, but monthly sum can deliver 12% or more in the right year.
- Low-volatility bull runs. Years like 2017, when the S&P gained 21% with almost no volatility, are monthly-sum paradise.
- When the monthly cap is generous. A 3.0% monthly cap combined with a steady market can theoretically generate 36% annual credits, though contracts this favorable are increasingly rare in today’s rate environment.
When Monthly Sum Loses
- Volatile markets. Every month the index drops more than the cap, you lose that full amount against your capped upside. One -10% month can wipe out a full year of gains.
- Big single-month rallies. If the market gains 8% in one month and then flatlines, you earn the 2% cap and miss the other 6%.
- Black swan events. March 2020 (COVID crash) and October 2008 are months when monthly sum contracts delivered zero for the entire year.
Monthly Sum vs Annual Point-to-Point
The best way to compare these two methods is by looking at the payoff profile for different market environments.
| Market Scenario | Monthly Sum (2% cap) | Annual Point-to-Point (8% cap) |
|---|---|---|
| Index up 24% steady (2%/month) | 24% | 8% |
| Index up 10% steady | ~10% | 8% |
| Index up 25% with one -10% month | ~14% | 8% |
| Index up 15% with two -5% months | ~8% | 8% (tie) |
| Index up 5% with one -8% month | ~0% to 4% | 5% |
| Index down 10% | 0% | 0% (tie) |
Monthly sum is a bet on smooth market returns. Annual point-to-point is a bet on positive market returns. If the market grinds steadily up, monthly sum wins. If the market is choppy or volatile, annual point-to-point wins.
Typical Monthly Caps in Today’s Market
Monthly caps have come down significantly from where they were in the early 2010s. Today, you can expect to see the following ranges on competitive fixed index annuity contracts:
- 1.5% monthly cap: Common on lower-rated carriers or shorter-term contracts (5-year).
- 2.0% monthly cap: The most common cap on 7- to 10-year contracts from A-rated carriers.
- 2.5% to 3.0% monthly cap: Found on select 10-year contracts, often with premium bonuses. Less common today than five years ago.
When evaluating monthly sum contracts, always multiply the monthly cap by 12 to find the theoretical maximum. A 2.0% cap means maximum annual credit of 24%, but the actual expected credit is usually much lower due to volatility.
Should You Choose Monthly Sum?
Monthly sum is best suited for buyers who:
- Believe the market will grind steadily higher without major drawdowns
- Are comfortable earning zero in years with single bad months
- Want the potential to outperform annual point-to-point in the best-case scenario
- Are willing to accept more downside asymmetry for higher upside potential
It is not ideal for conservative buyers who want more consistent, predictable annual credits. For most retirees, annual point-to-point produces smoother, more reliable results.
Related Crediting Methods
- Fixed Index Annuity Crediting Methods Overview
- Annual Point-to-Point Crediting Explained
- Participation Rate: How It Works in FIAs
- Spread/Margin Crediting Explained
- Fixed Index Annuity Guide
- Compare Current FIA Cap Rates
Frequently Asked Questions
What is the monthly sum crediting method on a fixed index annuity?
Monthly sum tracks the monthly change in an index (like the S&P 500), caps each positive month at a set percentage, and sums all twelve months at year-end. Positive months are capped but negative months count in full. If the total is positive, you earn it; if negative or zero, you earn zero for the year.
What is a typical monthly cap on a fixed index annuity?
Most competitive contracts today offer monthly caps between 1.5% and 2.5%, with 2.0% being the most common on 7 to 10 year A-rated products.
Can monthly sum outperform annual point-to-point?
Yes. In smooth, steady bull markets, monthly sum can significantly outperform annual point-to-point. A 2.0% monthly cap across a year of 1.5% to 2.0% monthly gains can produce 20%+ annual credits, compared to an 8% annual point-to-point cap.
When does monthly sum underperform?
Any year with one or more sharp monthly declines hurts monthly sum credits. A single -10% month can eliminate 5 months of capped gains. If volatility is high, annual point-to-point almost always wins.
Do I lose money on a monthly sum FIA in a bad year?
No. Principal is protected. The worst case is earning 0% for the year, even if the index had multiple negative months totaling -30% or more.
Sources & Citations
- S&P Dow Jones Indices: S&P 500
- LIMRA Secure Retirement Institute
- NAIC Consumer Resources
- Annuity.org: Fixed Index Annuity Guide
Disclosures: Educational information only. Hypothetical examples assume specific caps and returns; actual contracts vary. Guarantees are subject to the claims-paying ability of the issuing insurer.
