What Is Maturity Value?
The maturity value is the total amount of money you will receive at the end of an investment period. It represents the sum of your original principal plus all the interest earned over the investment horizon. Maturity value is a key metric for evaluating fixed-term investments such as bonds, certificates of deposit (CDs), fixed deposits, and savings accounts.
Maturity Value Formula
The maturity value is calculated using compound interest:
Maturity Value = Principal × (1 + Interest Rate) ^ Time
Where:
- Principal — the initial amount invested
- Interest Rate — the annual interest rate (as a decimal, e.g. 3% = 0.03)
- Time — the number of years the money is invested
How to Calculate Maturity Value — Step-by-Step Example
Let's walk through the example from the introduction:
- Principal: $2,000
- Interest rate: 3% per year
- Time: 2 years
- Identify the principal: $2,000
- Identify the interest rate: 3% (0.03 as a decimal)
- Identify the time period: 2 years
- Apply the formula:
MV = $2,000 × (1 + 0.03)² = $2,000 × 1.0609 = $2,121.80
The interest earned is $2,121.80 − $2,000 = $121.80.
What Affects Maturity Value?
Three factors determine the maturity value of your investment:
- Principal — the larger the principal, the higher the maturity value.
- Interest rate — a higher interest rate means faster growth and a larger payout at maturity.
- Time — the longer the investment horizon, the more time compound interest has to work, resulting in a significantly higher maturity value.
Frequently Asked Questions
Can the maturity value be negative?
No, the maturity value can never be negative. Since the maturity value is a monetary value derived from a positive principal and a non-negative interest rate, the result will always be greater than or equal to the principal.
What is the difference between maturity value and face value?
The face value (or par value) of a bond is the amount the issuer promises to repay at maturity — it does not include accrued interest. The maturity value is the total amount received, which may equal face value (for zero-coupon bonds paid at maturity) or be calculated separately based on coupon payments and reinvestment.
What is the maturity value of a $1,000 investment at 5% for 1 year?
MV = $1,000 × (1 + 5%) ^ 1 = $1,000 × 1.05 = $1,050. The interest earned is $50.
How does maturity value relate to bond investing?
For bond investments, the effective interest rate is usually called the yield to maturity (YTM). YTM represents the total annual return if the bond is held until maturity, accounting for the purchase price, coupon payments, and face value repayment. You can use the YTM to plug into the maturity value formula to estimate the total payout at the end of the bond's life.
Does maturity value use simple or compound interest?
This calculator uses compound interest, which assumes that interest earned is reinvested each period. This is the standard assumption for most investment products. For simple interest, the formula would be: MV = Principal × (1 + Interest Rate × Time).