With the all time low interest rates that we have been living with (although they have been going up quite a bit recently), we continually get questions from our readers about how caps work inside these index annuities. In particular, many are wondering why they would ever pick a low annual cap when they could have huge “potential” upside with monthly caps or some other uncapped crediting method.
Unfortunately, it just isn’t that simple. You must understand that it isn’t as if these insurance companies are running a lottery company and only awarding those that pick the correct crediting methods. In fact, they don’t know which one will perform the best either, in any given year. But what they do know is that over a long period of time (7-10 years), all of the crediting methods should be priced to perform very closely together.
Keep that in mind as you watch the great video below called S&P Index Strategies Using Fixed Indexed Annuities.