What is Annuity Due?
An annuity due is a series of equal payments made at the beginning of each period rather than the end. Rent and insurance premiums are common real-world examples, since you pay for the period up front.
How an Annuity Due Differs from an Ordinary Annuity
With an ordinary annuity, payments arrive at the end of each period. With an annuity due, they arrive at the start. That head start means each payment earns interest for one extra period, so an annuity due has a higher future value and present value than an otherwise identical ordinary annuity.
Where You See It
Some immediate annuities pay at the beginning of the period, which technically makes them an annuity due. The first SPIA check arriving right away is a familiar example.
Key takeaway: An annuity due pays at the beginning of each period, giving every payment extra time to grow. That makes it worth slightly more than an ordinary annuity with the same payments.
