Interest Rate Floors

Insurance companies set minimum interest rates called interest rate floors to protect annuity owners from downturns in current rates. These floors guarantee that a predetermined interest rate will be credited to the underlying investment funds of a fixed or indexed annuity. Variable annuities do not have the protection of interest rate floors, but they also don’t have limits on gains.

Kim Borwick, Financial Editor for Annuity.org
  • Written By
    Kim Borwick

    Kim Borwick

    Financial Editor

    Kim Borwick is a writer and editor who studies financial literacy and retirement annuities. She has extensive experience with editing educational content and financial topics for Annuity.org.

    Read More
  • Edited By
    Emily Miller
    Emily Miller, Managing Editor for Annuity.org

    Emily Miller

    Managing Editor

    Managing editor Emily Miller is an award-winning journalist with more than 10 years of experience as a researcher, writer and editor. Throughout her professional career, Emily has covered education, government, health care, crime and breaking news for media organizations in Florida, Washington, D.C. and Texas. She joined the Annuity.org team in 2016.

    Read More
  • Financially Reviewed By
    Thomas J. Brock, CFA®, CPA
    Thomas Brock, CFA, CPA, expert contributor to Annuity.org

    Thomas J. Brock, CFA®, CPA

    Expert Contributor

    Thomas Brock, CFA®, CPA, is a financial professional with over 20 years of experience in investments, corporate finance and accounting. He currently oversees the investment operation for a $4 billion super-regional insurance carrier.

    Read More
  • Updated: September 13, 2022
  • 2 min read time
  • This page features 4 Cited Research Articles
Fact Checked
Fact Checked

Annuity.org partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

Cite Us
How to Cite Annuity.org's Article

APA Borwick, K. (2022, September 13). Interest Rate Floors. Annuity.org. Retrieved January 31, 2023, from https://www.annuity.org/annuities/rates/floors/

MLA Borwick, Kim. "Interest Rate Floors." Annuity.org, 13 Sep 2022, https://www.annuity.org/annuities/rates/floors/.

Chicago Borwick, Kim. "Interest Rate Floors." Annuity.org. Last modified September 13, 2022. https://www.annuity.org/annuities/rates/floors/.

Why Trust Annuity.org
Why You Can Trust Annuity.org
Annuity.org has provided reliable, accurate financial information to consumers since 2013. We adhere to ethical journalism practices, including presenting honest, unbiased information that follows Associated Press style guidelines and reporting facts from reliable, attributed sources. Our objective is to deliver the most comprehensive explanation of annuities and financial literacy topics using plain, straightforward language.

Our Partnerships, Vision and Goals

We pride ourselves on partnering with professionals like those from Senior Market Sales (SMS) — a market leader with over 30 years of experience in the insurance industry — who offer personalized retirement solutions for consumers across the country. Our relationships with partners including SMS and Insuractive, the company’s consumer-facing branch, allow us to facilitate the sale of annuities and other retirement-oriented financial products to consumers who are looking to purchase safe and reliable solutions to fill gaps in their retirement income. We are compensated when we produce legitimate inquiries, and that compensation helps make Annuity.org an even stronger resource for our audience. We may also, at times, sell lead data to partners in our network in order to best connect consumers to the information they request. Readers are in no way obligated to use our partners’ services to access the free resources on Annuity.org.

Annuity.org carefully selects partners who share a common goal of educating consumers and helping them select the most appropriate product for their unique financial and lifestyle goals. Our network of advisors will never recommend products that are not right for the consumer, nor will Annuity.org. Additionally, Annuity.org operates independently of its partners and has complete editorial control over the information we publish.

Our vision is to provide users with the highest quality information possible about their financial options and empower them to make informed decisions based on their unique needs.

To understand how interest rate floors work, you need to know a little bit about the types of annuities and how interest is credited to each.

Fixed Annuities (FIAs)
The insurance company sets a declared rate that is credited for the guaranteed term. The term is typically one year for traditional fixed annuities and three to 10 years for multi-year guaranteed annuities.
Indexed
Interest is credited based on the performance of a stock market index. Most indexed annuities also offer the option of allocating a portion of the premium to a bucket of fixed investments. In such cases, the annuity uses an indexed strategy and a fixed strategy. The funds allocated to the fixed bucket earn interest in the same way traditional fixed annuities earn interest.
Variable
Unless it allows you to allocate a portion of your premium to a fixed account, a variable annuity will have no minimum guaranteed interest rate. It will, however, have unlimited upside potential because interest is credited based on the performance of the selected investments. According to the U.S. Securities and Exchange Commission, “the money in the [variable] account will vary according to the amount of premiums you pay, the amount of contract fees and expenses, and the performance of the investment options you choose.”

In addition to these basic interest crediting methods, specific pricing levers make it possible for insurance companies to provide their clients with annuity income benefits. One of these levers is the interest rate floor.

What Is an Interest Rate Floor?

An interest rate floor is simply a minimum interest rate that is credited to an annuity’s underlying investment portfolio. Regardless of the market and the performance of the insurance company’s own investments, it must honor the minimum interest rate stated in the contract.

According to Wink Intel, fixed and multi-year guaranteed annuities generally offer a minimum guaranteed floor of 1 percent or more, whereas indexed annuities offer a guaranteed floor of no less than 0.00 percent.

This floor protects the annuity owner from the negative effects of declining interest rates. Thus, fixed annuities are considered a safer option than variable annuities.

Indexed annuities, which are also subject to caps, spreads and participation rates, are considered moderate-risk products. The average interest rate floor for an indexed annuity ranges from 1 to 3 percent on at least 87.5 percent of the premium paid.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: September 13, 2022
Written By
Kim Borwick, Financial Editor for Annuity.org
Kim Borwick Financial Editor
View Bio
Edited By
Emily Miller, Managing Editor for Annuity.org
Emily Miller Managing Editor
View Bio
Financially Reviewed By
Thomas Brock, CFA, CPA, expert contributor to Annuity.org
Thomas J. Brock, CFA®, CPA Expert Contributor
View Bio

4 Cited Research Articles

Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. Financial Industry Regulatory Authority. (2022, July 14). The Complicated Risks and Rewards of Indexed Annuities. Retrieved from https://www.finra.org/investors/insights/complicated-risks-and-rewards-indexed-annuities
  2. U.S. Securities and Exchange Commission. (2008, November 16). Comment Letter: File Number S7‐14‐08, Proposed Rule 151A. Retrieved from https://www.sec.gov/comments/s7-14-08/s71408-2797.pdf
  3. U.S. Securities and Exchange Commission. (n.d.). Variable Annuities. Retrieved from https://www.investor.gov/introduction-investing/investing-basics/investment-products/insurance-products/variable-annuities
  4. Wink Intel. (2021). Annuities 101. Retrieved from https://www.winkintel.com/insurance-basics/annuities/