What is the minimum interest rate that can be credited to a fixed annuity?

The minimum interest rate that can be credited to a fixed annuity is determined by the contract guaranteed rate. This is a crucial element of fixed annuities, as it provides policyholders with a safety net ensuring that their investment will earn at least a specified minimum interest rate, regardless of market fluctuations.

Insurers often set this guaranteed rate based on various factors, including current economic conditions and the insurer's general financial standing, but it is stated clearly in the annuity contract. This guarantee protects the annuity holder, providing a predictable return on investment over the course of the policy.

In contrast, the market rate and federal interest rate are influenced by broader economic factors and can fluctuate, meaning they do not provide the security of a guaranteed return. The inflation rate, while important for evaluating purchasing power, does not correlate to the guaranteed interest credited to an annuity but instead serves as a measure of economy-wide price increases. Thus, the contract guaranteed rate is specifically designed to assure policyholders of a minimum return, making it the correct answer.