Interest-Crediting Methods

You have a fixed index annuity. It's a way to secure income in retirement.

It works like this:

You pay an amount of money upfront. Then, come retirement time, an investment firm or insurance company (whoever you signed the annuity deal with) starts sending you monthly checks.

The "fixed index" part means that the amount you earn in retirement will at least partially be tied to the performance of some index. The index can either take the form of a fixed interest rate, or it can track some other measure of investment performance (say, the S&P 500 stock index).

These annuity contracts unfold over decades. It may be a long time between the moment you buy the annuity and the moment it starts to pay off. Then it might be another chunk of years while you receive the payments (hopefully that's true...you'll be collecting it until you die).

The interest-crediting methods provide the rules governing how the interest is applied to your account. A point-to-point method involves looking at two points in time. However far the index rose during that time (any decline in the index is counted as "no interest"), that percentage move is applied to the annuity.

An alternative is called the monthly average method. As you might guess, this model computes the monthly average and then applies that to the account.