What Is Point-to-Point Crediting?
Point-to-point crediting is a method for calculating how much interest to credit in a fixed indexed annuity. The carrier records the index level at the beginning of the crediting period (the "start point") and again at the end (the "end point"). The percentage change between the two is the basis for the credited interest, subject to any cap, participation rate, or spread.
Annual Point-to-Point
The most common version measures the start and end of each contract year. It is simple to understand and resets annually (see: annual reset), meaning each year is treated independently. A good year credits a gain; a bad year credits zero (due to the floor); neither affects prior or future years.
Multi-Year Point-to-Point
Some contracts measure over a longer period — two, three, or five years. These designs often offer higher caps to compensate for the longer wait. The tradeoff is that if the index falls sharply near the end of the period, it can wipe out earlier gains within that measurement window.
Monthly Averaging as an Alternative
Instead of measuring only two points, monthly averaging calculates the average of monthly index values over the period. This smooths volatility and can benefit or hurt credited interest depending on market patterns.
Choosing the Right Crediting Period
There is no universally superior choice. Annual point-to-point is transparent and commonly preferred for its simplicity. Multi-year designs can offer larger upside in certain market environments. Your licensed advisor can model historical scenarios to show how each would have performed over representative past periods.