Interest-Crediting Method

What Does Interest-Crediting Method Mean?

Interest-crediting methods are used to calculate interest changes in fixed index annuities. In insurance, these annuities are often offered as part of a life insurance policy. Interest rates play a crucial role in many life insurance policies and can significantly affect their value.

Insuranceopedia Explains Interest-Crediting Method

Several different interest-crediting methods are available, such as point-to-point, monthly average, and monthly sum, which are all commonly used. The point-to-point method calculates interest based on the increase in an annuity’s value from one point to the next. The monthly average method calculates interest based on the average monthly increase over a set period, such as 12 months. The monthly sum method calculates interest based on the percentage increase at the end of each month. Many policies allow the policyholder to choose their preferred method.