What Are Participation Rates With No Cap?
The participation rate decides how much of the increase in the index will be used to calculate fixed index-linked interest. For example, if the calculated change in the index is 9% and the participation rate is 70%, the index-linked interest rate for your fixed annuity will be 6.3% (9% x 70% = 6.3%). Some annuities guarantee that the participation rate will never be set lower than a specified minimum or higher than a specified maximum.
What Are Caps On Interest Earned?
While a cap limits the amount of interest you might earn each year, annuities with this feature may have other product features you want, such as annual interest crediting or the ability to take partial withdrawals. Also, annuities that have a cap may have a higher participation rate. As of 10/16/2015, average annual caps are 4%. This video shows how a participation rate with NO Caps work.