Future Value Calculator
Use this Future Value (FV) calculator to determine the future value of any investment. It is a versatile tool that allows for periodical additions or withdrawals (cash inflows and outflows) and can calculate the future value of an annuity or any other investment type.
Using the future value calculator
This financial calculator can assist you in determining the future value of an investment or deposit based on an initial investment amount, the annual interest rate, and the compounding period. Additionally, you can input periodic contributions or withdrawals and the frequency of these occurrences. The calculator will provide the final value of the investment, the present value of the investment, total interest accrued, effective interest rate, capital growth, and more.
The output of the FV calculator consists of:
- the final value of the investment
- the present value (PV) of the investment
- total interest accrued, effective interest rate, capital growth, and more
What is "Future value"?
The future value represents the estimated worth of an investment at a specific point in the future, taking into account the growth rate per period, compounding, contributions or withdrawals, and the timing of these events. This calculation is useful for estimating the potential payoff of an investment given its present value and considering the time value of money. The investment could be in the form of a savings account deposit, a business project, stock market portfolio, investment fund, etc.
Utilizing a future value calculator can aid in making more informed decisions when allocating resources. Knowing the future value can help decide whether to invest in a certain manner or spend the money immediately. Like any other mathematical model, the future value calculation has assumptions that if not met, can result in inaccurate predictions. Most importantly, it assumes a consistent rate of return. The outcome also depends on the accuracy of the predicted interest rate, as even small discrepancies can result in significant differences in actual results due to the compounding effect.
It’s worth noting that the future value calculated is nominal, it doesn’t take into account inflation or other factors that may affect the actual value of money in the future.
Future value formula
The basic formula for calculating future value is:
FV = PV(1 + r)^(t*n)
Where FV is the future value of the asset or investment, PV is the present or initial value, r is the annual interest rate (expressed as a decimal and not compounded or annual percentage yield), t is the time in years and n is the number of compounding periods per unit of time (t).
This equation is also the basis of our software. When you enter an annual interest rate, it calculates the future value of an annuity, but it can also be used for other cash flow frequencies such as monthly, daily, quarterly, etc.
Future Value calculation example
Let us assume a $100,000 investment with a known annual interest rate of 14% from which we plan to withdraw $5,000 at the end of each annual period. The future value of this investment can be determined by using the future value formula, assuming that we expect to withdraw the money 1, 2, 3, 5, or 10 years from now. The results of the future value calculation are shown in the table below.
| Initial Value | Rate of Return | Number of Years | Yearly Payment | Present Value |
|---|---|---|---|---|
| $100,000 | 14% | 1 | -$5,000 | $109,000 |
| $100,000 | 14% | 2 | -$5,000 | $119,260 |
| $100,000 | 14% | 3 | -$5,000 | $130,956 |
| $100,000 | 14% | 5 | -$5,000 | $159,491 |
| $100,000 | 14% | 10 | -$5,000 | $274,036 |
This example illustrates the principle of time value of money. As the time frame for receiving the future value of the investment increases, the future value of the annuity increases, assuming the rate of return and initial investment remain constant. This can be seen in the table above. It’s also important to note that even small annual withdrawals, in this case just 5% of the initial investment, can have a significant effect on the future value. Without these withdrawals, the FV with a 10-year annuity would be $370,722 or nearly $100,000 more than the value without the postponed consumption. This is why it’s generally a good idea to avoid withdrawing from a savings account and why reinvesting the interest can yield such high returns over time.