Calculate the present value of a future sum of money based on a discount rate and time period.
A present value calculator works out how much a future sum of money is worth today, using a discount rate. This is the reverse of a future value calculation — instead of asking "what will this grow to?", it asks "what is a future amount worth in today's terms, given that money received later is worth less than money received now?"
Present value discounts a future amount back to today by reversing compound growth — dividing by (1 + discount rate) for each year between now and the future date. A higher discount rate or a longer time period both reduce the present value, reflecting that money further away in time, or money that could otherwise earn a higher return, is worth less today.
Formula: Present Value = Future Value ÷ (1 + Discount Rate)Years.
Example: A future value of £10,000 to be received in 5 years, discounted at a 6% rate (example rate — enter a rate appropriate to your situation), has a present value of roughly £7,470. In other words, £7,470 today is considered roughly equivalent to £10,000 in 5 years, if money can grow at 6% per year. (Note: this example is for illustration purposes only.)
Present value calculations underpin a wide range of financial decisions — comparing a lump sum today against a series of future payments (such as a pension lump sum versus an annuity), valuing future cash flows from an investment or business, or working out how much you'd need to set aside now to meet a future goal or liability. The discount rate you choose matters enormously: it should reflect either the return you could realistically earn elsewhere with that money (an "opportunity cost" rate) or, in some contexts, a rate that reflects the riskiness of actually receiving the future amount. This calculator is the mirror image of the Future Value Calculator, which works forward from a present amount to a future one — together, they cover both directions of basic time-value-of-money analysis.
Money available today can be invested or saved to earn a return, so it has the potential to grow into a larger amount by the future date. Conversely, a fixed amount promised in the future is worth less today because you're giving up that growth potential (and there may also be uncertainty about whether the future amount will actually be received).
A common approach is to use your "opportunity cost" — the rate of return you could reasonably expect to earn elsewhere with that money, such as a savings rate or investment return. For riskier or less certain future amounts, a higher discount rate is sometimes used to reflect that uncertainty.
They're two sides of the same calculation. Future value answers "what will this amount grow to?" while present value answers "what is a future amount worth today?" Present value divides by (1 + rate)^years, while future value multiplies by it — they're mathematical inverses of each other.
Not specifically, but you can use an inflation rate as the discount rate if you want to express a future amount in terms of today's purchasing power. The calculation itself is the same regardless of whether the discount rate represents an investment return, inflation, or another rate.
In principle, yes — present value concepts are often used to compare a lump sum today with a stream of future payments. However, comparing pension options involves additional factors (such as life expectancy, tax treatment, and the specific terms of the pension), so this general-purpose calculator is a starting point rather than a complete comparison tool.
A higher discount rate implies that money today could grow faster if invested, making a fixed future amount relatively less valuable in today's terms — it would take a smaller amount today, growing at that higher rate, to reach the same future value.
Disclaimer: The information and figures provided on this page are for educational and illustrative purposes only and do not constitute financial advice. The default discount rate is a sample value and may not be appropriate for your specific situation. This calculator does not account for tax, fees, or the specific terms of any financial product. Always consult a qualified financial adviser before making financial decisions.