# How do I calculate annuity interest? (with photo)

An annuity is a type of contract between an individual and an insurer.

When you invest in an annuity, you put a fixed amount of money into an investment vehicle at the beginning or end of several fixed time periods. At the end of the investment duration, you get the annuity maturity value, which is the amount invested plus interest. To know the interest amount of the annuity, you first need to calculate the maturity amount of the annuity and then subtract it from the amount invested. To do these calculations, you need to know the amount of money per payment, the number of payments, the length of each payment period, and the interest rate.

You can easily understand the concept behind calculating annuity interest if you know basic compound interest. When you invest money in an account that accrues compound interest, you earn interest on both the principal and previously accrued interest. In other words, the amount of interest you receive at the end of each period increases the longer your money stays in the investment vehicle.

For example, if you have \$100 USD that earns 5% interest per year, at the end of the first year, you will have \$105. At the end of the second year, you will receive 5% interest on \$105 USD, which means which will have \$110.25 USD. Your money will only grow by \$5 USD in the first year, but will increase by \$5.25 USD in the second year. The amount of interest you earn increases over time, and you can calculate the value of your investment at the end of any period using the following formula: initial investment x (1 + interest rate per period) number of periods. In our example, the calculation for the second year is: 100 x (1 + 0.05) 2 = 110.25.