Future Value Calculator

What this calculator tells you

The future value of a sum is what it will be worth at a later date if it grows at a fixed annual rate. This calculator answers the question of how much a lump sum will grow to, which is useful for planning savings goals, comparing investment options and understanding the effect of time on money.

It is the single-sum version of compounding. Unlike a regular savings plan, it assumes one deposit at the start and no further payments, so it shows the effect of the rate and the time alone.

How the future value is worked out

The future value equals the present value multiplied by one plus the annual growth rate, raised to the number of years. The growth rate is applied to the whole balance each year, so the interest in each year is larger than the one before. This is the essence of compounding, and it is why the length of time matters so much.

A worked example

Suppose you invest 5,000 at a 6% annual growth rate for ten years. The growth factor is 1.06 raised to the tenth power, which is about 1.791. The future value is 5,000 multiplied by 1.791, which is about 8,954. The gain is about 3,954, and most of it comes in the later years, when the balance is larger.

Using the result to set goals

Reverse the calculation to find out how much you need to invest today to reach a target. Divide the target by the growth factor for your time period. For example, to reach 10,000 in ten years at 6%, you would need about 5,584 today. This is the present value of the goal, and it can help you decide how much to set aside now.

Assumptions and limits

The calculator uses a fixed rate for the whole period. Real returns vary from year to year, so the value at the end depends on the path as well as the average. A negative return reduces the balance, and a return that changes over time is not captured by a single rate.

Taxes, fees and inflation are not included. Inflation reduces what the future sum can buy, so the real value is lower than the nominal figure. Taxes on gains and charges on the account reduce what you keep.

Common mistakes with growth assumptions

A common error is to use a return that is the best figure from the past rather than a reasoned long-term expectation. Returns that look certain over a few years can prove very different over decades. Test a range of rates and choose a plan that still works at the lower end.

Another error is to forget that a higher rate requires more risk. Comparing two investments only on the stated rate, without asking what could go wrong, can lead to decisions that are harder to live with when markets fall.

Using the result

Use the calculator to compare the value of an investment over different periods and rates, and to check whether a goal is reachable. Test a lower rate than you expect to see whether the goal still holds, and consider the level of risk that the assumed rate requires.

Comparing future value with inflation

A future value shows a nominal amount, so compare it with the cost of the goal in future money. If a goal costs 10,000 today and inflation averages 3%, the same goal will cost more in a decade. Inflate today's cost to the year you need it and compare that with the future value. This shows whether the plan keeps pace with prices, rather than only whether the balance has grown.