Present Value Calculator

About the Present Value Calculator

Present value is future value run backwards: what money arriving later is worth now.

  PV = FV ÷ (1 + r)ⁿ

The formula is the easy part. What it is for is the reason to have a calculator, and it is usually one specific question:

A lump sum now, or payments spread over years?

A pension offering a transfer value against an annual income. A settlement paid at once or in instalments. A lottery cash option against the annuity. Buying out a lease. In every case the two offers are quoted in different units, and without discounting the comparison is impossible.

How to Use the Present Value Calculator

Lump sum or payments? Enter the lump being offered and the payment stream you would get instead.

Value a payment stream. Just the payments — what they are worth today.

Value a future amount. A single sum arriving on a known date.

The discount rate is the return you could genuinely earn on the money instead. It is not a detail. It decides the answer.

Step-by-Step Example

£500,000 now, or £35,000 a year for 20 years?

  The payments in cash:       20 × 35,000  =  700,000.00
  Discounted at 4%:                           475,661.42

  Against the lump sum:                       500,000.00
  The lump sum wins by:                        24,338.58

The payments total £700,000 and are worth £475,661 today, because the last one arrives in twenty years and is worth only £15,973.54 now.

The Number That Settles the Argument

Here is the problem with the answer above: change the discount rate and it reverses. At 3% the payments win. At 4% the lump does. So which is right?

Neither, as a fact. The useful output is the break-even rate:

  The two are worth exactly the same at 3.44% a year.

Above 3.44%, take the lump. Below it, take the payments.

That single figure replaces an argument about assumptions with a question you can actually answer about yourself: can I reliably earn more than 3.44% on £500,000? If the money would clear a mortgage at 5%, yes. If it would sit in an account paying 2%, no.

Most calculators print one number and imply it settles the matter. It does not. The rate you chose settled it, and you chose the rate.

Choosing the Discount Rate Honestly

Use what you would actually do with the money, not what you hope to do:

• Money that would clear debt → the debt's interest rate.
• Money that would sit in savings → the savings rate.
• Money that would be invested → a realistic long-run return, after charges.

The temptation is to pick a rate that produces the answer you already want. A high rate makes the lump look good; a low rate makes the income look good. If you find yourself adjusting it until the answer changes, you have stopped calculating and started rationalising.

What the Discounting Does Not Capture

Two risks sit outside the arithmetic entirely, and both argue for the lump sum.

The payer could fail. Twenty years of promised income is only as good as whoever is promising it. A lump sum in your hand has no counterparty.

Inflation erodes fixed payments. The calculator assumes every payment is the same £35,000 in cash. If they are not index-linked, the one arriving in year twenty buys far less than the one arriving next year — and that is on top of the discounting already shown.

Conversely, one thing argues for the income: a lump sum can be spent, lost, or invested badly. An income cannot.

Why a Stream Is Worth Less Than Its Total

Each payment is discounted by its own distance:

The last payment is worth less than half the first, despite being the same amount of money. Add all twenty and you get £475,661 — the £224,339 difference is the whole cost of waiting.

Understanding Your Result

Worth today is the discounted value, or the winner if you are comparing.

Against the cash amount shows the headline total beside the discounted one, which is where the gap becomes visible.

At your rate names the rate doing the work.

Where it flips is the break-even rate — the most useful line on the page.

Worth knowing covers the risks the discounting cannot see.

When Should You Use This Calculator?

A pension transfer value against a promised income. The classic case, and one of the largest financial decisions most people make.

A structured settlement or compensation offer. Paid at once or in instalments.

A lottery cash option. The advertised jackpot is the undiscounted total.

Buying out a lease, ground rent or earn-out. Any promise of future payments that someone wants to settle today.

Sense-checking a "worth £X" claim. If it adds up future payments without discounting, it is overstating.

Common Mistakes

Comparing a lump sum to a payment total. £500,000 against £700,000 looks obvious and is wrong.

Picking the discount rate to get the answer you want. The rate is the answer.

Forgetting inflation on fixed payments. Unless they are index-linked, the later ones buy much less.

Ignoring counterparty risk. A promise is not cash.

Using a high investment return you will not actually achieve. Use what you would really do, after charges.

Overlooking tax. A lump sum and an income are often taxed very differently, and that difference can exceed everything calculated here. Check before deciding.

Every figure here is an estimate for planning. Decisions of this size usually warrant regulated advice, and this is not it.