Future value
Also called FV
What money invested today will grow to at a later date, given a rate of return and compounding.
What it means
Future value projects how much a sum will be worth after earning a return for a number of periods. It applies compound growth: each period, the balance increases by the rate, and the next period’s growth builds on the larger balance.
Future value is only as good as the assumed rate. Savings accounts and CDs have fairly predictable rates, but stock market returns vary year to year, so long-term projections are estimates. Results are also in nominal dollars unless inflation is factored out.
Formula
FV = PV × (1 + r)^n
- FV = future value
- PV = amount invested today
- r = rate of return per period
- n = number of periods
Example
Suppose you invest $5,000 at 7% a year compounded annually. After 10 years the future value is $5,000 × 1.07^10, or about $9,836.
How it’s used
- Projecting retirement or college savings
- Comparing what different rates or time frames produce
- Seeing the long-term cost of spending money now
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.