An annuity cap rate is the maximum interest rate that an indexed annuity will credit in a given period, regardless of how much the underlying index gains. For example, if the cap rate is 10% and the S&P 500 gains 20%, the annuity credits 10%. Cap rates are set by the insurance company and can change each year.
Key Points
- Cap rate: maximum interest credited regardless of index gains
- Example: 10% cap rate, S&P 500 gains 20% = 10% credited
- Cap rates set by insurance company and can change each year
- Higher cap rate = more growth potential
- An independent agent can compare cap rates across indexed annuity carriers