A Market Rate Adjustment (MRA), also known as a Market Value Adjustment (MVA), is a feature found commonly in fixed and fixed-indexed annuities. It adjusts the cash value you receive if you surrender the annuity or withdraw funds before the end of the contract term. The adjustment reflects how current interest rates compare to the rates in effect when you purchased your annuity.
When you buy a fixed annuity, the insurance company invests your premium in bonds or similar fixed-income securities with set interest rates. They plan to hold these investments for the duration of your contract. If you withdraw early, the insurer may have to sell these bonds before maturity in a different interest rate environment, potentially incurring a gain or loss. The MRA passes this corresponding adjustment to you.
If interest rates have risen since your purchase, the bonds held by the insurer paying lower interest are less valuable, so the insurer incurs a loss that leads to a negative adjustment reducing your payout. Conversely, if rates have fallen, the older higher-yield bonds are worth more, resulting in a positive adjustment that can increase your cash value.
Unlike a fixed surrender charge—which is a predetermined penalty applied for early withdrawals during a set period—an MRA fluctuates with interest rates and can be positive or negative. Typically, both may apply, and your final payout upon early withdrawal is your account value minus any surrender charges plus or minus the MRA.
To manage the impact of an MRA, consider:
- Holding your annuity to maturity to avoid adjustments
- Using free withdrawal allowances (often up to 10% annually) to minimize penalties
- Understanding your contract’s MRA terms before investing
- Monitoring interest rate trends if considering an early surrender
Not all annuities have an MRA; it is primarily associated with fixed and fixed-indexed products. Death benefits usually pay the full account value without MRA or surrender charges, but always check your policy details.
For more information on surrender charges, see our glossary on Surrender Charge. To learn more about annuities in general, visit our article on Annuities.
Sources:
- Investopedia, Market Value Adjustment (MVA): https://www.investopedia.com/terms/m/market-value-adjustment.asp
- FINRA, Annuities: https://www.finra.org/investors/annuities
- IRS, Annuities overview: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-annuities