Tread Carefully when Comparing Bonus Rates

Rebates, longer-term financing, and other temptations are often used by automakers to get you to buy or lease a new car.  But these complications obfuscate how much you really pay in financing costs.  Along a similar line, fixed annuity companies frequently have incentives to reward you for investing. One of the most widely used is the “bonus rate.” But if you aren’t careful, you might not get what you bargained for.  Bonus rates look good at first buy may cloud your ability to see what you really earn. The bonus annuity rate is generally given during the first year or few years that you own the fixed annuity and can significantly enhance the initial return. Furthermore, the bonus increases the annuity’s principal on which future interest will be credited. Therefore, a bonus could possibly boost the overall yield over the contract’s term. However, the company may be offering this reward because you are expected to keep the contract for up to 10 years. If you remove your investment before that time is up, you may be hit with surrender charges that could more than wipe out the bonus you had received. Additionally, some annuities with high bonuses may not have [...]

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