What is Ordinary Annuity?
An ordinary annuity is a series of equal payments made at the end of each period, such as the end of every month or year. Most fixed income streams, from bond interest to many annuity payouts, follow this pattern.
Ordinary Annuity vs. Annuity Due
The only difference is timing. An ordinary annuity pays at the end of each period, while an annuity due pays at the beginning. Because every payment in an annuity due arrives one period earlier, it has slightly more time to earn interest, so its present value and future value are both a little higher.
Why the Timing Matters
When you compare income options, knowing whether payments come at the start or end of the period helps you value them correctly. The gap is small over one period, but it adds up across decades of payments.
Frequently Asked Questions
What is an ordinary annuity?
An ordinary annuity is a series of equal payments made at the end of each period, such as the end of every month or year.
What is the difference between an ordinary annuity and an annuity due?
The only difference is timing. An ordinary annuity pays at the end of each period, while an annuity due pays at the beginning.
Why does the timing of annuity payments matter?
When you compare income options, knowing whether payments come at the start or end of the period helps you value them correctly. The gap is small over one period, but it adds up across decades of payments.
