What is an Annuity?
An annuity is a series of equal payments made at regular intervals. In finance, annuities are often used for retirement purposes, where you either pay a lump sum today to receive a steady stream of income later, or you make regular contributions to build up a large sum for the future.
Present Value vs. Future Value of an Annuity
- Present Value (PV) of an Annuity: This tells you how much a future series of payments is worth today. This is useful if you want to know how much you need to invest now to guarantee a specific income stream in retirement.
- Future Value (FV) of an Annuity: This calculates how much a series of regular payments will be worth at a specific point in the future. This is helpful for understanding how your regular savings or investments will grow over time with compound interest.
Ordinary Annuity vs. Annuity Due
- Ordinary Annuity: Payments are made at the end of each period (e.g., standard loan payments).
- Annuity Due: Payments are made at the beginning of each period (e.g., rent payments). Because payments are made earlier, an annuity due will have a higher present and future value than an ordinary annuity.
How to Use the Annuity Calculator
Use this calculator to find the payout or the required investment for your financial goals. Simply enter the payment amount, the interest rate, the number of periods, and choose when the payment is made to calculate your results instantly.