As required by state insurance law, indexed annuities do provide for a minimum amount of interest. This interest rate is stated in the policy (usually 1% to 3%), but does not apply to 100% of the premiums paid. Usually the rate applies to 87.5% of the premiums paid. This guaranteed rate is considered only against premiums paid and does not consider any interest previously credited or "bonuses" applied by the insurance company. When considering a policy’s value, the customer receives the higher of the value considering the guaranteed formula or the indexed account value. To put this guarantee into perspective, if the guarantee was 87.5% of the premiums paid accumulated at 1% compounded annually, it would take 13 years for a policyholder's guaranteed minimum value to equal 100% of a single sum premium paid.
Like traditional annuities, indexed annuities have surrender charges. These charges vary from 20% down to 1% and policies can have surrender charge periods ranging from 1 – 16 years. 10–13 years is the most common length of a surrender charge period on indexed annuities. Some policies measure the surrender charge period from the date the policy is issued, others apply the surrender charge period to each premium paid to the policy.