Introduction to Future Value of a Single Amount (FV)

If left undisturbed, a single amount deposited today into your savings account will grow to a larger balance. That future balance is referred to as a future value or FV. Over a long period of time, the future value of that single deposit can grow to be a significant amount for two reasons: 

1. the initial deposit earns interest, and
2. the interest added to your account will also earn interest.

Earning interest on the previously earned interest is known as compound interest.

The calculation of future value determines just how much a single deposit, investment, or balance will grow to, assuming it is left untouched and earns compound interest at a specified interest rate. The calculation of the future value of a single amount can also be used to predict what a present cost of an item will grow to at a future date, when the item's cost increases at a constant rate. Additionally, the formula for computing the future value can be used to determine either the interest rate or the length of time necessary to reach a desired future value.

Our explanation of future value will use timelines for each of the many illustrations in order for you to develop a thorough understanding of the future value of a single amount. Throughout our explanation we will utilize future value tables and future value factors. After mastering these calculations of the future value of a single amount, you are encouraged to use a financial calculator or computer software in order to obtain more precision.

The future value of a single amount is mathematically related to the Present Value of a Single Amount, another topic on this website.

What's Involved in Future Value (FV) Calculations

The future value of a single amount involves four variables:

PV	Present value amount. This could be the amount of a single deposit made at the present time, a present account balance, the present cost of an item, etc.
FV	Future value amount. This is the amount that the present value will grow to. It can be the account balance in the future, the future cost of an item, etc.
n	Number of time periods that interest will be added and compounded over the life of the deposit, cost, etc.
i	Interest rate for the time period n. For example, if interest is to be compounded monthly, then a rate of 12% per year will be restated to be 1% per month.

If you know any three of these four variables, you will be able to calculate the unknown amount.