How Do Index Annuities Work? 
An Index Annuity is a type of Fixed Deferred Annuity . It guarantees a minimum return , while allowing index-linked gains up to a specified yearly cap or `` limit '' . The index-linked gains are usually based on a yearly basis . The most common crediting method is the `` Annual Point to Point '' method ; this method credits the yearly gain -LRB- during the contract year -RRB- up to the specified cap . There are other Crediting Methods that calculate index movements on a monthly or even bi-annual basis . But it is important to remember that all index-linked gains are limited to the yearly or monthly cap ; this is the trade off for receiving a guaranteed minimum return . 