What is an annuity?
An annuity is a long-term financial contract between an individual and an insurance company. The individual makes regular payments or a lump-sum contribution, and the annuity returns periodic payments or a lump sum that includes accumulated interest.
The future value of an annuity measures how much a stream of regular payments will be worth at a specific point in the future, given a stated interest rate and compounding frequency. Insurance companies, retirement planners, and investors use this estimate to compare annuity products and savings strategies.
- Payment amount is the recurring deposit made each period.
- Interest rate is the annual rate applied to the annuity.
- The term is the duration over which payments are made or the annuity accumulates.
Types of annuities
Annuities are classified by when payments occur and how they grow.
Ordinary annuity vs. annuity due
An ordinary annuity makes payments at the end of each period. Most loan payments and traditional retirement plan contributions follow this structure.
An annuity due makes payments at the beginning of each period. Rent, insurance premiums, and some retirement payouts use this structure. Because each payment earns interest for one additional period, annuity due produces a slightly higher future value than an ordinary annuity with the same inputs.
Fixed vs. growing annuities
A fixed annuity assumes a constant payment amount throughout the term. Most calculators use this default assumption.
A growing annuity increases each payment by a fixed growth rate, which can help model inflation-adjusted contributions or rising income streams. When the growth rate equals the periodic interest rate, the future value simplifies to the payment amount multiplied by the number of periods and adjusted for the annuity type.
How to use our annuity calculator
Enter the payment amount, interest rate, annuity term, compounding frequency, and payment frequency. Choose between ordinary annuity and annuity due under the Type of annuity option.
The calculator shows the future value and breaks down the periodic equivalent interest rate, equivalent annual rate, and total number of periods. Expand the Advanced parameters section to set a growth rate for growing annuity scenarios or to enter a custom number of periods directly.
Example
Suppose you deposit $1,000 per month into an ordinary annuity earning 5% annual interest compounded monthly for 10 years. With monthly compounding and monthly payments, the periodic equivalent interest rate is approximately 0.4167%. The total number of periods is 120. The future value of this annuity would be approximately $155,282.
Adjust the payment amount, term, or rate to compare different strategies. Switching to annuity due increases the result by one period of interest because each payment is invested sooner.
Frequently asked questions
The compounding frequency determines how often interest is calculated and added to the principal. More frequent compounding increases the effective interest rate and the future value for the same nominal annual rate.
Continuous compounding produces the highest future value because interest is theoretically added at every instant.
- Payment frequency should match how often you actually contribute or receive payments.
- The growth rate should only be used when payments are expected to increase regularly.
- Switching from an ordinary annuity to annuity due can increase the estimated future value by roughly one period's interest.