Bonus Interest

BONUS INTEREST

Much of the annuity information/literature I get shows big headlines about how great the first year return can be. That's through the use of extra interest the first year. But what you need to do is look at the underlying rate you will get thereafter, since the much lower return- as compared to other annuities without bonus interest- can easily offset the first year bonus over time. You or your adviser must have use of an HP12C (financial calculator) if you are going to use annuities.

The interior numbers represent $100,000 in seven years and are based on annual base rate renewals.

0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00%

4.25% 133,824 134,465 135,107 135749 136,391 137,033 137,675 138,316 138,958 139,600 140,242

4.50% 136,086 136,737 137,388 138,040 138,691 139,342 139,993 140,644 141,666 142,688 144,987

4.75% 138,382 139,042 139,703 140,363 141,024 141,684 142,345 143,005 143,666 144,326 144,987

5.00% 140,710 141,380 142,050 142,720 143,390 144,060 144,730 145,400 146,070 146,740 147,410

5.25% 143,072 143,751 144,431 145,111 145,790 146,470 147,150 147,289 148,509 149,189 149,868

5.50% 145,468 146,157 146,847 147,536 148,226 148,915 149,604 150,294 150,983 151,673 152,362

5.75% 147,898 148,597 149,296 149,995 150,695 151,394 152,093 152,793 153,492 154,191 154,891

6.00% 150,364 151,072 151,782 152,491 153,201 153,910 154,619 155,328 156,083 156,747 157,456

6.25% 152,863 153,582 154,301 155,021 155,740 156,459 157,179 157,898 158,617 159,339 160,056

6.50% 155,399 156,128 156,858 157,587 158,317 159,047 159,776 160,506 161,235 161,965 162,694

6,75% 157,970 158,710 158,710 159,450 160,929 161,669 162,409 163,149 163,889 164,629 165,369

7.00% 160,578 161,328 162,078 162,829 163,579 164,329 165,080 165,830 166,581 167,331 168,081

So what's the deal? Assume someone gives you a base rate of 5.50% but with a 4.00% first year bonus. Looks great with an advertisement of 9.50% the first year. The other agent only has a 6.25% overall rate and NO bonus. In seven years with the bonus, you would have $150,983. But if you had taken the 6.25% rate, you would have had $152,863. While not a huge difference, the difference gets larger and larger as the years roll by.

Bonus interest can work in certain situations, but may be a gimmick overall. Do your homework before purchasing.

	0.00%	0.50%	1.00%	1.50%	2.00%	2.50%	3.00%	3.50%	4.00%	4.50%	5.00%
4.25%	133,824	134,465	135,107	135749	136,391	137,033	137,675	138,316	138,958	139,600	140,242
4.50%	136,086	136,737	137,388	138,040	138,691	139,342	139,993	140,644	141,666	142,688	144,987
4.75%	138,382	139,042	139,703	140,363	141,024	141,684	142,345	143,005	143,666	144,326	144,987
5.00%	140,710	141,380	142,050	142,720	143,390	144,060	144,730	145,400	146,070	146,740	147,410
5.25%	143,072	143,751	144,431	145,111	145,790	146,470	147,150	147,289	148,509	149,189	149,868
5.50%	145,468	146,157	146,847	147,536	148,226	148,915	149,604	150,294	150,983	151,673	152,362
5.75%	147,898	148,597	149,296	149,995	150,695	151,394	152,093	152,793	153,492	154,191	154,891
6.00%	150,364	151,072	151,782	152,491	153,201	153,910	154,619	155,328	156,083	156,747	157,456
6.25%	152,863	153,582	154,301	155,021	155,740	156,459	157,179	157,898	158,617	159,339	160,056
6.50%	155,399	156,128	156,858	157,587	158,317	159,047	159,776	160,506	161,235	161,965	162,694
6,75%	157,970	158,710	158,710	159,450	160,929	161,669	162,409	163,149	163,889	164,629	165,369
7.00%	160,578	161,328	162,078	162,829	163,579	164,329	165,080	165,830	166,581	167,331	168,081