Savings And Investment Calculator Bankrate

Future Value Formula:

\[ FV = P \times (1 + r / n)^{(n \times t)} + PMT \times \left[ \frac{(1 + r / n)^{(n \times t)} - 1}{r / n} \right] \]

Initial Principal (P):

Annual Growth Rate (r):

decimal

Compounding Periods Per Year (n):

Time (t):

years

Periodic Payment (PMT):

$ per period

Future Value (FV):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is the Future Value Formula?

The Future Value formula calculates the value of an investment at a future date based on initial principal, interest rate, compounding frequency, time period, and periodic contributions. It helps investors understand how their money can grow over time.

2. How Does the Calculator Work?

The calculator uses the Future Value formula:

\[ FV = P \times (1 + r / n)^{(n \times t)} + PMT \times \left[ \frac{(1 + r / n)^{(n \times t)} - 1}{r / n} \right] \]

Where:

$ FV $ — Future Value (currency)
$ P $ — Initial Principal (currency)
$ r $ — Annual Growth Rate (decimal)
$ n $ — Compounding Periods Per Year (unitless)
$ t $ — Time in Years (years)
$ PMT $ — Periodic Payment (currency per period)

Explanation: The formula accounts for compound interest on both the initial principal and periodic contributions, providing a comprehensive view of investment growth.

3. Importance of Future Value Calculation

Details: Calculating future value is essential for financial planning, retirement savings, investment analysis, and understanding the time value of money.

4. Using the Calculator

Tips: Enter all values in the appropriate units. Initial principal and periodic payments should be in currency units, annual growth rate as a decimal (e.g., 0.05 for 5%), compounding periods as whole numbers, and time in years.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both principal and accumulated interest, leading to exponential growth.

Q2: How does compounding frequency affect future value?
A: More frequent compounding (higher n) results in higher future value due to interest being calculated and added more often.

Q3: What is a typical compounding frequency?
A: Common frequencies include annually (n=1), semi-annually (n=2), quarterly (n=4), monthly (n=12), and daily (n=365).

Q4: Can this calculator handle irregular contributions?
A: No, this calculator assumes regular, consistent periodic payments. For irregular contributions, more complex calculations are needed.

Q5: How accurate are future value calculations?
A: These calculations provide mathematical projections but don't account for market volatility, taxes, or changing interest rates in real-world scenarios.