Annual point to point
Interest is based on the change in the index from the start of the term to the end. A cap may limit how much of a gain counts. Ask whether interest compounds during the term.
Participation rate
The share of the calculated index increase used for interest. Example: 10% index change × 70% participation = 7% before other rules. Companies can set new participation rates for new issues often. Your starting rate depends on when the contract is issued.
Monthly point to point (monthly sum)
Each month’s index change is measured. Positive months may be limited by a monthly cap. At the end of the year, months are added. If the sum is positive, interest may be credited. If not, many contracts credit zero for that year—not a market loss to the account (read your contract).
Averaging
Averaging can soften sharp ups and downs. It may also reduce credited interest when the index rises quickly near the start or end of a term.
Annual reset (ratchet)
When interest is credited and locked in each year, later index drops do not take away interest already credited under that design.
For myth-busting and longer guides, visit hybridannuitymyth.com and annuitiesexplained.org.
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