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An annuity due is a series of equal payments made at the beginning of each period. This timing distinguishes it from an ordinary annuity (also called an annuity-immediate), in which identical payments are made at the end of each period. The difference sounds minor, but it has a measurable financial effect: because each payment in an annuity due is received or made one period earlier, every payment has slightly more time to earn interest, giving an annuity due a higher present value and higher future value than an equivalent ordinary annuity with the same terms.
Rent paid at the start of each month is the most common everyday example of an annuity due. Insurance premiums that are due at the beginning of a coverage period, subscription fees charged at the start of each billing cycle, and lease payments due at signing are also structured as annuities due.
The present value of an annuity due is calculated by multiplying the present value of an equivalent ordinary annuity by (1 + r), where r is the interest rate per period. This adjustment reflects the fact that each payment arrives one period earlier. The future value of an annuity due is similarly higher than the future value of an ordinary annuity, multiplied by the same factor (1 + r).
In a practical comparison: $100,000 invested as an ordinary annuity at 5% annual interest over 10 years with monthly payments generates a monthly payment of approximately $1,060.66. The same principal structured as an annuity due generates a monthly payment of approximately $1,056.25 — slightly less per period, because each payment arrives earlier and thus covers a longer span of accumulated interest.
| Annuity Due | Ordinary Annuity (Annuity-Immediate) | |
|---|---|---|
| Payment timing | Beginning of each period | End of each period |
| Present value | Higher (by factor of 1+r) | Lower baseline |
| Future value | Higher (by factor of 1+r) | Lower baseline |
| Real-world examples | Rent, insurance premiums, subscriptions, leases | Mortgage payments, bond coupon payments, loan repayments |
| Preferred by | Recipients (get money sooner) | Payers (keep money longer) |
In actuarial notation, an annuity due is denoted with double dots over the standard annuity symbol (ä). In financial calculators, switching from end-of-period to beginning-of-period mode (often labeled BGN) adjusts the computation automatically. Spreadsheet functions such as Excel's PV and FV functions include a type argument where 0 indicates end-of-period (ordinary annuity) and 1 indicates beginning-of-period (annuity due).
When evaluating whether a payment structure is an annuity due or ordinary annuity, the relevant question is not the calendar date of the payment but whether the payment covers the period that just ended or the period that is about to begin. Rent paid on September 1 for the month of September is an annuity due. A mortgage payment made October 1 for the interest that accrued in September is an ordinary annuity payment.
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