How Do I Choose the Best 5-Year Annuity?

Choosing the right 5-year annuity can be very important if the goal is to create some sort of return that can be used in the future. As with most other types of interest-bearing investments, all 5-year annuities are not created equal. For this reason, it is important to look closely at the rate of interest associated with the annuity, the terms and conditions that apply to the investment over the course of the 5-year period, and how the annuity is ranked within the industry.

One of the first considerations with choosing a 5-year annuity is the rate of interest that will be earned. Annuities of this type may come with a fixed or a variable rate of interest applied to the annual contributions made to the program. The goal is to project the movement of interest rates within the economy over the life of the annuity and decide which type of rate is likely to produce the most desirable results. Should the decision be to go with a variable rate, make sure to identify the lowest possible rate that may apply to the balance of the account each annual period. In like manner, if you prefer to go with a fixed rate, make sure the projections for the future indicate that rate is likely to be competitive with the average rate of interest for at least most of the 5-year period.

Along with evaluating and choosing the best rate of interest for the 5-year annuity, take the time to look closely at the terms and conditions that apply to the investment. Identify whether the interest is applied based on a 360- or a 365-day period annually, especially if the amount of the yearly contributions to the annuity are considerable, since this will have a direct impact on the total amount of interest income generated. Also take the time to identify any fees that may be incurred, especially penalties for withdrawing from the annuity program early. Typically, early withdrawal from an annuity involves the application of fees that offset a great deal of any interest accrued up to that point. Try to go with a 5-year annuity program that offers the best possible terms, including lower fees and penalties.

Taking time to get some information on the 5-year annuity ranking is also a very good idea. The goal is to choose a program that is considered financially stable, reliable, and likely to provide the projected returns. While there is always some degree of risk with any type of investment, making sure the entity providing the annuity is strong and likely to be around long enough for you to receive the benefits from the investment is essential. This is especially true when there are no governmental underwriting programs that help to provide assurance that the investment will not be lost if the sponsoring entity should fail. By considering the ranking of the 5-year annuity within the industry, it is easier to identify which plans present a lower degree of risk and are more likely to ultimately provide the returns you desire.