Annuities sold through banks hit a rough patch in last year, but 2011 looks brighter as interest rates begin to rise and the Dow Jones Industrial Average continues to improve.

On Wednesday the Kehrer-Jackson Monthly Bank Annuity Sales Survey was released revealing the first half of 2010 saw sales at a five-year low of $2.2 billion, increasing to $2.6 billion in February and $3.3 billion in March - the highest level of the year. But the second quarter was rocky, with sales tumbling 13% to $2.8 billion in April and than jumping 18% to a quarterly high of $3.1 billion in May. June’s sales fell 8%, to $2.9 billion, but were still higher than April. For the second half of the year, bank sales of annuities appeared ranged from $2.5 billion to $2.9 billion.

Interestingly, in September 2010 banks sold 13% more variable annuities than fixed annuities, a marked difference from January when sales of fixed and variable annuities through banks were about equal at $1.11 billion in fixed annuities and $1.06 billion in variables. Fixed annuities peaked in March at $1.8 billion and slowly declined throughout 2010, remaining steady in the fourth quarter. Meanwhile, variable annuity sales rose each month and by December production was 33% more than September.

Variable annuities seem poised for growth in 2011, the survey reports. With the recession winding down, variable annuities should benefit from the recent bull market, given the historic correlation between variable annuity sales and the Dow Jones. Fixed annuity sales should also make a comeback as interest rates rise.

Meanwhile, as interest rates start to recover, fixed annuity sales should also benefit. According to the Kehrer-LIMRA Bank Fixed Annuity RateWatch, the rate spread between the yield on five-year CDs and the average effective yield offered by fixed annuities reached a low of negative 16 basis points in June 2010. November saw the spread reach positive territory again and improved into January 2011, with the average effective yield on five year products up 39 basis points above CD offerings for five year commitments.

“When you combine the likely positive effect of the recent equity markets on variable sales with the benefits of increasing fixed annuity/CD rate spreads on fixed annuity sales, the ultimate result could be a very positive 2011 for total annuity sales” said Jennifer Parmelee Witt, Associate Research Director at Kehrer-LIMRA, in a statement.