Annuity Payment is a neat way to earn profits and interest payouts by having an initial investment. This calculator will help you calculate the exact profits that you’ll make with your principal investment. The calculator does this by taking into account various factors. These include the Annual Interest Rate, Years of Pay Out, Payment Frequency, Payment Type, and Annual Inflation Rate.
How To Use the Annuity Payment Calculator?
The Annuity Payment Calculator makes calculations easy and user friendly. It helps in analyzing, contrasting, and comparing the interest payments; you’ll get with different investments/ interest rates. We can look into the data that you have to fill:-
This amount is the initial investment that you pay. Your initial investment plays a significant factor in what your final interest profits would be. Moreover, all interest rates and Inflation rates will affect this principal amount. You should note that the higher your principal amount is, the more you’ll receive as profits in the long run.
This interest rate is the one that applies to your principal amount. The service provider allots this interest rate in most cases. In some situations, your interest rate can also be dependent on your principal amount. This equation means that you’ll have a higher interest rate if your principal amount is higher. Hence, the consensus is that a higher interest rate means better profit margins in the end.
Years To Pay Out In
This input is pretty straightforward; You have to input the number of years the payout will be given. Therefore, it isn’t an exact linear relation; your profits are in positive proportion to the number of years of payout. Hence, you will receive more payouts is your years to payout is higher.
This is the frequency at which you give your payouts. It can range from bi-annually, which is once in two years, to monthly. Ideally speaking, the more frequent your payment is, the more interest you’ll earn in the end. This result is because your total number of payouts increases as the frequency in a fixed period also increases.
However, you have to look at one more aspect. If the total number of payouts are the same, is it better to spread them apart, or pay them at a higher frequency? To visualize this, we can use an example.
Let’s say that the principal interest is $1000 at a 10 percent interest rate. Moreover, we can ignore inflation because we’re taking a short period.
In our first case, we take a yearly payout for two years, and in the second case, we can take a half-yearly payout for one year.
If we input the values, we get $47 interest for the annual payment and $24 for semi-annual payment. This data shows that spreading apart your payments can bring more interest in the long run. However, we have to keep in mind that the larger the duration is, the more unpredictable the situation can become, as the economics of currency is a volatile one.
There are two ways you can make a payment; they can be at the beginning or the end of the period. This difference might look like minor, but once details are taken into consideration, you can significantly gain in your profits over time.
We can consider an annual payment of a $1000 principal amount at a 10% interest rate for two years. From this, we can see the considerable margin for the end of period payment relative to the beginning of year payment.
Annual Inflation Rate
This is a vital factor that must be taken into consideration when dealing with large periods, over 5-10 years. The value of your currency can significantly change over time. Moreover, relying on the old value of the currency might give you relatively less interest than you deserve.
What This Calculator Shows You
This calculator shows you a variety of data at the end of the calculation to give you the complete perspective of the situation. Post Calculation, it neatly tabulates your input data, Initial Payout, Final Payout, and, most important of all, your Total Interest Earned.
This feature can help you compare and contrast your package with other packages to make sure that you can make an informed decision.
We have looked into various aspects of the annuity payment calculator. It can help you with the hassle of annuity payment calculations. Moreover, you can easily interpret and analyze the data shown with minimum subjectivity to make an informed decision. If you are interested in other calculators for general applications, or personal applications, check out our other calculators here, like the Salary Calculator and the Pay Raise Calculator.