The crediting method defines how the index's movement is measured for interest. Common methods include annual point-to-point (comparing the index on two dates a year apart), monthly sum, and monthly average. The method, combined with caps, participation rates, and floors, determines credited interest.
Different methods can produce different results in the same market, so understanding the method matters when comparing contracts. Terms are set by the issuing insurance company.
Example
Under an annual point-to-point method, only the index level on the start and end dates matters — daily ups and downs in between do not change the result.
This definition is for general educational purposes only and is not financial, tax, or legal advice. Tim Hartle is an independent insurance professional. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company and are not FDIC insured. Rules and product features vary by situation and by state. Please consult a qualified advisor about your own circumstances.