What is Future Value?
Future value (FV) is a financial concept that tells you what an amount of money today is expected to be worth at a specific point in the future, assuming a certain rate of return (interest rate). Typically, cash held in a savings account, money market, or bond purchase earns compound interest and thus grows in nominal value over time.
A good example of this calculation is a standard savings account. The future value formula allows you to determine exactly how much your initial deposit, combined with any regular monthly or yearly contributions, will grow over a set period.
A Simple Example
You can use the calculator above to test this concept. If you input a Starting Amount (PV) of $10 at an Interest Rate (I/Y) of 6% for exactly 1 period (year), and leave the Periodic Deposit at $0, the resulting Future Value is $10.60. This demonstrates that $10 placed in a savings account today yielding 6% annually will be worth $10.60 exactly one year from now.
The Time Value of Money
Future Value (FV)—along with Present Value (PV), Interest Rate/Yield (I/Y), Number of Periods (N), and Payment (PMT)—is a critical element in the Time Value of Money (TVM) framework. TVM forms the mathematical backbone of modern finance.
The core principle of TVM is that a dollar received today is worth more than a dollar received tomorrow, simply because the dollar today can be invested to earn interest immediately. Without the concepts of Present and Future value, complex financial instruments like mortgages, auto loans, annuities, and credit cards could not exist.
To learn more about calculating what future sums of money are worth in today's dollars, please visit our Present Value Calculator.