Annuity Due

The only difference between an annuity due and an ordinary annuity is timing. In an annuity due, the first payment happens immediately, and each later payment comes at the start of its period rather than the end.

Common examples include rent, insurance premiums, many lease payments and subscriptions, which are usually paid in advance.

Because each payment arrives one period earlier, an annuity due is worth more than an equivalent ordinary annuity. Suppose you will receive 1,000 at the start of each year for three years, and money earns 5%. The value today is about 2,859, compared with about 2,723 if the same payments came at the end of each year. The annuity due is worth exactly 5% more, because each payment has one extra period to earn interest.

The same idea applies to saving. If you invest a fixed amount at the start of each month rather than the end, your savings will grow slightly larger over time, because every deposit earns interest for one extra month.