Annuity crediting method is the formula or approach an annuity uses to determine how interest or index-linked gains are credited to the contractTMs accumulation value. In fixed indexed annuities, common crediting methods include annual point-to-point, monthly sum, monthly average, and performance-trigger designs, each with its own sensitivity to market moves and volatility. Crediting methods work in conjunction with caps, participation rates, and spreads to define the risk"reward tradeoff for a given strategy. In traditional fixed annuities, the crediting method is typically a declared rate, while in variable annuities, returns are driven by subaccount performance. For clients, the crediting method shapes how their annuity responds to market conditions and affects long-term performance.

Advisors explain annuity crediting methods when helping clients choose among index strategies or compare different products. They illustrate how a point-to-point method might capture a full yearTMs gain up to a cap, while a monthly sum method could be more sensitive to volatility and intra-year swings. Advisors also warn that complex methods may be harder for clients to understand, even if they offer appealing back-tested results. During allocation periods, advisors recommend diversifying across multiple crediting methods to balance potential returns and risk of under-performance in any single strategy. Understanding annuity crediting methods allows advisors to move past marketing headlines and focus on how each method realistically translates index behavior into credited interest over time.