Fixed annuities continued their comeback in May, with yields rising for the third month in a row.
The average rate paid on fixed annuities climbed to 5.77% in mid-May, from 5.41% in mid April, according to Kenneth Kehrer Associates, Princeton, N.J. The one-year bonus rate that some insurers pay jumped to 6.74% from 6.42%.
Outpacing Mutual Funds
Annuity sales at banks arc climbing in tandem with the general increase in short-term interest rates, Mr. Kehrer said.
Some banks are now reporting selling more fixed annuities than mutual funds, he said.
"We've definitely seen that in the last two to three months," said Mark Stevens, vice president at Farmers and Merchants Bankin Salisbury, N.C.
Currently, about 60% of the bank's investment product sales are in fixed annuities and 40% in mutual funds, Mr. Stevens said. "That's kind of a switch for us."
Volume Off Last Year
The sales surge has left some insurers scrambling to process sales, Mr. Kehrer added.
Insurers underwrite the contracts, or policies, that are connected to these tax-deferred investment products.
The run-up in fixed-annuity sales is a switch from last year, when volume skidded as interest rates fell. Fixed-annuity returns are pegged to government securities, corporate debt, and other interest-sensitive investments.
The rates of 36 annuity products rose, while seven were unchanged from mid-April, according to Kehrer Associates. The firm conducts a monthly poll of insurers that offer annuities through banks.
