How to work out a future value
- Enter the Amount today, the yearly Rate and the number of Years.
- Pick how often interest is compounded. If you also pay in a fixed amount each period, enter it in Regular payment and choose whether it goes in at the start or end of each period.
- Read the future value, how much of it is interest, and the balance at the end of each year.
Time value of money
A sum of money today is worth more than the same sum later, because it can earn interest in the meantime. Future value puts a number on that: what today’s money and a series of payments will be worth at a set date, at a given rate.
The calculator uses the standard time value of money formulas found in finance textbooks and financial calculators:
- Lump sum: FV = PV × (1 + r)^n
- Payments at the end of each period: FV = PMT × ((1 + r)^n − 1) ÷ r
- Payments at the start: the same, multiplied by (1 + r)
Here r is the yearly rate divided by the periods a year, and n is years times periods a year. With continuous compounding, the growth factor is e^(rate × years) and payments are monthly.
Choosing a rate
The result is only as good as the rate. For a savings account, use its interest rate. For investments, returns vary every year, so try a cautious and a hopeful figure and treat the result as a range, not a promise. To see the result in today’s money, run it again with the rate minus expected inflation. For saving towards a target amount, the savings goal calculator works out the payment for you.