Annuity Calculator

Future value versus present value

The future value of an annuity is what a stream of payments accumulates to by the end, once each payment has earned interest for the time remaining. The present value is the reverse: the single amount today that is equivalent to receiving that stream, discounting each future payment back. A retirement plan uses future value while it saves; a pension buyout or lottery lump-sum offer uses present value to price the stream you would give up.

Ordinary annuity versus annuity-due

An ordinary annuity pays at the end of each period; an annuity-due pays at the start. Every payment in an annuity-due therefore earns (or is discounted by) one extra period, which makes it worth exactly one period's interest more — the factor is simply (1 + rate per period). Rent and insurance premiums are annuities-due; loan payments and most bond coupons are ordinary.

The rate must match the period

The single most common mistake is mixing an annual rate with monthly payments. This page divides the annual rate by the number of payments per year automatically, so a 6% annual rate with monthly payments uses 0.5% per month across the correct number of periods. If you compare against a textbook that uses a periodic rate directly, convert first.

Why the interest component is not the whole story

The interest figure here is the gap between what you pay in and what the stream is worth — genuine, but nominal. It does not adjust for inflation, and it assumes every payment earns exactly the stated rate with no variation. Real streams face reinvestment risk: a future value assumes each payment can be reinvested at the same rate until the end, which rarely holds when rates move. Treat the result as a clean benchmark, not a guarantee, and stress-test it with a lower rate.

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