Monthly averaging (also called monthly sum or monthly point-to-point) is a crediting method that breaks the annual crediting period into twelve monthly segments, calculating and summing each month's performance.
How monthly averaging works:
1. Calculate each month's index change (start to end of month)
2. Apply monthly cap to positive months (e.g., 2% cap)
3. Negative months are typically uncapped (full loss counted)
4. Sum all twelve monthly changes
5. If sum is positive, credit that interest; if negative, credit 0%
Example with 2% monthly cap:
- January: +3% → capped at +2%
- February: -1% → counts as -1%
- March: +1% → counts as +1%
- ... and so on for all 12 months
- Final sum = credited interest (minimum 0%)
When monthly averaging performs well:
- Steady, gradual market increases
- Markets that rise consistently month-over-month
- Low-volatility environments
When monthly averaging may underperform:
- High volatility with big swings
- Markets that drop then recover
- Strong rallies with pullbacks
The asymmetry (capped gains, uncapped losses) means volatile markets can produce 0% credits even if the index ends the year higher. However, the strategy typically offers higher caps or participation rates to compensate.
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