# How to Calculate Fees in Fixed Index Annuity

A fixed index annuity, also known as an equity indexed annuity, is an investment vehicle designed to help individuals save for retirement. It differs from other annuities in that the interest the insurance company pays to the holder is not fixed, but rather linked to an equity index such as the Standard & Poor's 500 Composite Stock Index. The fees the holder pays are normally a percentage of the interest received.

## Calculate the Participation Rate

The amount of interest you receive, and in turn the fees you pay, is calculated using the participation rate. The participation rate is the percentage of the index rate increase you receive as interest. For example, if your fixed index annuity has a participation rate of 90 percent and is linked to the S&P 500 Composite Stock Index, which has risen 10 percent, you will receive 9 percent interest for the period.

## Calculate your Credited Return Percentage

The amount you actually receive is called your credited return. Imagine you have paid a total of \$10,000 in annuity payments and your credited return is \$600. Divide your credited return, \$600, by your total payments, \$10,000, giving 0.06. Multiply the answer by 100, giving six. Your credited return percentage is 6 percent.

Subtract your credited return percentage from your participation rate. In this example, 9 percent minus 6 percent gives 3 percent. Your total fees are 3 percent. To calculate the dollar value, divide your total annuity payments, \$10,000, by 100 and multiply the answer by three, giving \$3,000. Your total fees are \$3,000.

## Withdrawal Fees and Vesting Schedules

Most fixed index annuities also charge penalty fees for early withdrawal. Withdrawal fees, generally between 5-10 percent, are charged on any withdrawals before the end of the annuity's term. These are designed to discourage early withdrawal. A vesting schedule dictates how much of your earnings you retain if you withdraw early. For example, if you withdraw in the first year of your term, you may not retain any earnings. If you withdraw in your second year, you may only retain 10 percent, with this figure increasing by 10 percent annually.