On an annuity, the credited rate is the actual interest percentage the insurer applies to your balance for a stretch of time. A MYGA locks it in for the whole term; other annuity types reset it periodically based on an index or the insurer's declared rate.
How credited rates work on fixed annuities
On a multi-year guaranteed annuity, the credited rate is set the day you fund the contract and does not move for the whole term. As a hypothetical example, a 5-year MYGA credited at 5.50% would apply that same 5.50% to your full balance every year, compounding on top of prior interest, with no exposure to market swings either way. That is different from a yield to maturity or an effective annual rate you might see quoted on a bond or a CD. The credited rate is simply the number the insurer has contractually promised to apply, and it is the figure buyers compare first when shopping MYGAs against each other. Because rates move with the broader market, always confirm the current credited rate for your state and term before you apply rather than relying on a number you saw elsewhere. Two MYGAs advertising the same headline rate can still differ in how a premium bonus or a rate band tied to your deposit size is layered on top, so read the actual illustration line by line rather than comparing the percentage alone.
Credited rate vs. renewal rate
Once your initial guarantee period ends, the carrier sets a new credited rate for the next period, usually called a renewal rate or a new money rate. That renewal rate is frequently set below what a fresh MYGA from a competing carrier would pay a new buyer, which is one reason so many contract owners choose a 1035 exchange into a new contract at maturity rather than simply letting the old one roll over. Mark your renewal date on the calendar and compare the declared rate against what else is available before you decide to stay put. Some contracts soften that decision with a bailout provision, letting you leave without a surrender charge if the renewal rate ever falls below a stated floor, so it is worth checking whether yours includes one before your term ends.
Frequently asked questions
What is a credited rate?
It is the actual interest percentage the insurer applies to your annuity balance for a given stretch, fixed for the entire term on a MYGA and reset from time to time on other annuity types.
How does a credited rate work on a MYGA?
The rate is set on day one and holds for the entire term. Picture a hypothetical 5-year MYGA locked at 5.50 percent: that same percentage applies to your whole balance every year, and it compounds instead of resetting to a flat number.
What is the difference between a credited rate and a renewal rate?
The credited rate is what you earn now, under your current guarantee period. Once that period ends, the carrier declares a fresh renewal rate, sometimes called a new money rate, and it is often lower than what a brand-new contract elsewhere would pay, which is why many owners look at a 1035 exchange when their term matures.
Written and reviewed by
James Forren Warren
Licensed Retirement Income Strategist · License #20551202
James Forren Warren is a licensed Retirement Income Strategist with Tax Free Wealth Plan. For the past five years he has helped individuals and families turn their savings into retirement income they can count on. He writes and reviews the annuity research on this site and keeps it plain: what a product does, what it costs you, and who it actually fits.
Educational only, not investment, tax or legal advice. Tax Free Wealth Plan LLC is a licensed insurance agency, not a registered investment adviser or broker-dealer. Annuities are not bank deposits, are not FDIC insured and are not guaranteed by any government agency. Guarantees are backed solely by the claims-paying ability of the issuing insurance company. Features, rates and availability vary by state and change over time; the contract and disclosure documents govern.