Ordinary vs due: drag the years
Two bars, one stream of payments. The shorter is an ordinary annuity, paid at the end of each month. The taller is the same stream paid at the start, an annuity due. Drag the years. The gap stays equal to one month of interest on the whole ordinary total.
Ordinary, end of month
$231,020
Due, start of month
$232,176
Paid in $120,000. The gap is 0.50%, one month of growth, for any horizon. Drag sideways to change the years. Illustrative arithmetic at 6 percent, not a forecast or advice.
In short
- Read the two endings. The taller bar is always the due total.
- Drag the years slider. The dollar gap grows. The percentage gap does not.
- Raise the monthly payment. Both bars scale. The extra period of growth is still one month.
- Set the rate to zero, where the two bars land on top of each other.
One extra period, applied once
An annuity due is the ordinary total multiplied by once, not once per payment. At 0.5 percent a month that is always 0.5 percent, whether the payments run for 5 years or 40. The money paid in is the same, so the whole difference is interest.
How annuity future value works is the identity. Ordinary against due annuity is the pair in a table. The future value of an annuity calculator prints both.
Read the payment date
Payroll deductions and month-end standing orders are ordinary. Rent and many premiums are due. Calling a product an annuity does not settle it: annuities explained is an insurance contract, and this picture is a savings stream. Mixing the two labels moves the answer by the full period rate.
Early payments do most of the compounding
Pull the years out and the interest share of the total climbs, because the first payment earns interest for almost every period and the last earns none. That is why a modest payment started early beats a larger one started late, and why how savings goals work works the problem backwards from a target.
Common questions
Why does the percentage gap never change?
Because the extra growth is one period, applied once to the whole total. The period rate does not care how many payments already sat in the account. The dollar gap grows only because the total it is a percentage of grows.
Does this include an opening balance?
No. This is the payment stream on its own. Grow an opening balance with the compound interest calculator and add the two totals. They do not interact.
Is the rate a forecast?
No. It is a steady rate you set, which is what makes two bars comparable. It is educational material, not advice.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.