Growth rate of the annuity (g) is the percentage increase of an annuity in the case of a growing annuity. In advanced mode, you can also see the following fields: Type of annuity (T) signifies the timing of the payment in each payment period (ordinary annuity: end of each payment period annuity due: the beginning of each payment period).įuture value of the annuity (FVA) is the future value of any present value cash flows (payments).
Payment frequency (q) indicates how often the payments will materialize. You can choose the frequency as continuous as well, which is an extreme form and the theoretical limit of compounding frequency. For example, when compounding is applied annually, m = 1, quarterly, m = 4, monthly, m = 12, etc. Interest rate (r) is the annual nominal interest rate expressed as a percentage.Īnnuity term constitutes the lifespan of the annuity.Ĭompounding frequency (m) refers to the number of times the interest is compounded. Payment amount (PMT) is the amount paid in or out (cash flow) for each period. To start, let's have a quick look at the parameters and terms you may encounter in our calculator:
#Periodic expenses due every month how to
In this section, you can learn how to use this calculator and the mathematical background that governs it. However, you can apply our future value of annuity calculator to help solve some more complex financial problems. In the previous section, we hope we provided some insight into how a simple annuity works. Therefore with the annuity due, the future value of the annuity is higher than with the ordinary annuity. The advanced payments immediately affect the future value of the annuity as the money stays in your bank for longer and therefore earns interest for one additional period. As you can see, in the case of an annuity due, each payment occurs a year before the payment at the ordinary annuity. The graph below shows the timelines of the two types of annuity with their future values. Let's assume that you deposit 100 dollars annually for three years, and the interest rate is 5 percent thus, you have a $100, 3-year, 5% annuity. The easiest way to understand the difference between these types of annuities is to consider a simple example. Ordinary annuity (or deferred annuity): payments are made at the ends of the periods – mortgages, car loans, and student loans are conventionally ordinary annuities.Īnnuity due: Payments are made at the beginning of each period – rental lease payments, life insurance premiums, and lottery payoffs (if you have the fortune to win one!) In this context, there are two types of annuities: The most important way to differentiate annuities from the view of the present calculator is the timing of the payments.
There are also equity-indexed annuities where payments are linked to an index. There are fixed annuities, where the payments are constant, but there are also variable annuities that allow you to accumulate the payments and then invest them on a tax-deferred basis. If the contract specifies the period in advance, we call it a certain or guaranteed annuity.Īnnuities are also distinguished according to the variability of payments. Since this kind of annuity is only paid under particular circumstances, it is called a contingent annuity (i.e., it is contingent on how long the annuitant lives for). You may hear about a life annuity where payments are handed out for the rest of the purchaser's (annuitant) life.
There are multiple ways to classify annuities.
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