What Is an Annuity? — How Do Annuities Work?
An annuity is any financial product involving a series of equal payments made at regular intervals. Whether you make monthly deposits into a savings account, pay off a mortgage, contribute to a pension, or draw down a retirement fund — you are dealing with an annuity. Our universal annuity calculator lets you solve for any single unknown: the initial deposit, the final balance, the payment amount, the time length, or the interest rate.
Types of Annuity
By Payment Timing
- Ordinary Annuity (Annuity Immediate) — Payments are made at the end of each period. Mortgages, car loans, and student loans are typically ordinary annuities.
- Annuity Due — Payments are made at the beginning of each period. Rental leases and life insurance premiums are usually annuities due. Because each payment has one extra period to grow, annuities due always produce a slightly higher future value than ordinary annuities.
By Payment Certainty
- Guaranteed (Certain) Annuities — Pay for a fixed period regardless of external events (e.g., NPS scheme in India).
- Contingent Annuities — Pay over the annuitant's remaining lifetime; a classic example is a life annuity.
By Return Type
- Fixed Annuities — Guarantee a fixed interest rate. Not regulated by the SEC.
- Variable Annuities — Invest in sub-accounts (like mutual funds). Regulated by the SEC in the USA.
- Equity-Indexed Annuities — Returns are linked to a stock index (e.g., S&P 500), with a floor and cap.
By Deferral
- Immediate Annuity — Payments begin right away (or within one period).
- Deferred Annuity — Payments begin after a specified accumulation period.
How to Use the Annuity Calculator
- Select what to calculate — Choose the unknown: Future Value, Present Value (Initial Deposit), Payment Amount, Time Length, or Interest Rate.
- Choose direction — Deposit means you are adding money each period (savings); Withdrawal means you are taking money out each period (drawdown).
- Fill in the known values — Enter the values for the other four parameters.
- Set frequencies — Choose how often payments are made and how often interest compounds.
- Select annuity type — Ordinary (end of period) or Due (beginning of period).
- Optional: growth rate — Set a non-zero annual growth rate to model a growing annuity where each payment increases by a fixed percentage.
- Click Calculate — The result appears instantly on the right.
Annuity Examples
Example 1 — Future Value of a Monthly Deposit
You deposit $100 per month into an account earning 5% per year (compounded monthly). What will the balance be after 10 years?
- Subject: Future Value
- Initial Deposit: $0 | Payment: $100/month | Rate: 5% | Years: 10
- Annuity Type: Ordinary | Payment & Compounding: Monthly
- Result ≈ $15,528.23
Example 2 — Monthly Withdrawal from Savings
You have $10,000 saved. An account pays 5% per year (compounded monthly). You withdraw $100 per month. How much will be left after 10 years?
- Subject: Future Value | Direction: Withdrawal
- Initial Deposit: $10,000 | Payment: $100/month | Rate: 5% | Years: 10
- Result ≈ $877.17
Example 3 — How Long Until a Goal?
You have $1,000 saved and deposit $200/month at 6% annual rate. How long to reach $50,000?
- Subject: Time Length
- Initial Deposit: $1,000 | Final Balance: $50,000 | Payment: $200/month | Rate: 6%
- Result ≈ 13.4 years
The Growing Annuity Formula
When each payment grows at a constant rate g per year, the future value is:
FV = PV × (1 + i)ⁿ + PMT × [(1 + i)ⁿ − (1 + g_p)ⁿ] / (i − g_p)
where i is the effective rate per payment period, g_p is the growth rate per period, and n is the total number of periods. This formula is used automatically when you enter a non-zero Annual Growth Rate.
Effective Periodic Interest Rate
When the compounding frequency differs from the payment frequency, the calculator converts using:
i_eff = (1 + r / m_c)^(m_c / m_p) − 1
where r is the annual rate, m_c is the number of compounding periods per year, and m_p is the number of payment periods per year.
American vs Metric Units
This calculator supports both US customary / imperial and metric conventions for currency display. Supported currencies include the US Dollar (USD), Russian Ruble (RUB), Euro (EUR), British Pound (GBP), Japanese Yen (JPY), and 15 more world currencies — select your preferred currency from the drop-down at the top of the form.
Disclaimer
This annuity calculator is provided for educational and informational purposes only. All figures are mathematical estimates based on the parameters you enter. They do not account for taxes, fees, inflation, or individual financial circumstances. Please consult a licensed financial advisor before making investment or retirement decisions.