What is What is the Future Value of an Annuity??
The future value of an annuity is the total amount a series of equal payments will grow into by a set date, including all the compound interest earned along the way. It answers a simple question: if I save or receive the same amount every period, how much will I have at the end?
How Does the Future Value of an Annuity Work?
Each payment earns interest from the moment it is made until the end of the term, so earlier payments grow more than later ones. Add up every payment plus its compounded interest and you have the future value.
For example, saving $5,000 a year for 20 years at 5% grows to about $165,000, even though you only deposited $100,000. The extra $65,000 is compound interest. You can model this with our compound interest calculator.
Timing matters. An “ordinary annuity” pays at the end of each period, while an “annuity due” pays at the beginning, which gives every payment slightly more time to grow and a higher future value.
Future Value vs. Present Value
Future value grows money forward in time, while present value discounts it backward to today. Both rely on the same discount rate, just applied in opposite directions. During the accumulation period of a MYGA, future value is what your contract is working toward.
