What Is a Single-Year Guarantee Fixed Annuity?

By Kerry Pechter

The single-year guarantee fixed annuity is like an adjustable rate mortgage in reverse. With this annuity, the insurance company promises to pay you a certain rate of interest for one year. But each year until the contract expires, the insurance company can raise or (more commonly) reduce that interest rate. The new rates are called renewal rates.

At the end of the surrender period, the contract expires. You have to buy a new contract or roll over to it.

Be sure you understand your actual rate; an agent or broker may throw a lot of different terms at you, including all or most of the following:

  • The base rate: The interest rate the company pays you the first year

  • The bonus rate: The bonus the company adds to the interest rate in the first year

  • The current rate: The base rate plus the bonus rate

  • The current yield: The interest rate your money will earn over the entire term of the contract if the company does not lower its base rate

  • The guaranteed yield: The lowest possible interest rate you can earn

  • Renewal rates: The rates after the first year

    A table of renewal rates can tell you whether the company has a history of raising, lowering, or maintaining the base interest rates of its single-year guarantee contracts after the first year.

    Ask your agent or broker for a renewal rate table, or look up the contract’s interest rate history online. The following figure shows a sample rate table from the Annuity Advantage Web site. (Rate histories are routinely provided to annuity salesmen, but not necessarily to customers.)

    A table of fixed annuity rates from the Annuity Advantage Web site.
    A table of fixed annuity rates from the Annuity Advantage Web site.