Maturity Value Definition, Why It Matters, Formula, Calculation

The interest rate of a bond investment is usually called the yield to maturity (YTM). It is beneficial to use a maturity value as one of many tools in your financial planning, but it’s important to understand not to make assumptions about the future value of your money. Maturity Value is the estimated future benefit of the investment at its scheduled date of maturity. When deciding what to do with a sum of money, you can use a maturity value to find out how long you could leave that money invested and still have it worth the same amount or more.

• Let’s say that you have $1000 and it will be 5 years before you need to use that money.
• Maturity Value is the estimated future benefit of the investment at its scheduled date of maturity.
• For most securities like loans and bonds, the maturity value is the same as the per value, but different financial instruments have different definitions of maturity value.
• If you are comfortable making assumptions about the future value of your money, then you can use a maturity value to estimate how much money will be available in the future.

The maturity value represents the total amount that must be paid to fulfill the financial obligation on the maturity date. Let’s say that you have $1000 and it will be 5 years before you need to use that money. You can look at the maturity values of different investment options and pick one for your $1000, based on how many years you could ‘safely’ leave that money invested. Maturity value is the amount due and payable to the holder of a financial obligation as of the maturity date of the obligation. A partial maturity value only takes into account the amount of money invested, not any earnings on the principal (e.g., if the principal grows because of compound interest).

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If you are comfortable making assumptions about the future value of your money, then you can use a maturity value to estimate how much money will be available in the future. So out of these three options, if you see, Institution 3 has the highest maturity value. Our goal is to deliver the most understandable and comprehensive explanations of financial topics using simple writing complemented by helpful graphics and animation videos. Finance Strategists is a leading financial literacy non-profit organization priding itself on providing accurate and reliable financial information to millions of readers each year. At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content.

• The interest rate of a bond investment is usually called the yield to maturity (YTM).
• For example, Maturity for a swap transaction is the date of the final cash settlement.
• Even with this knowledge, it is still beneficial to use a maturity value as one of many tools in your financial planning.
• For some certificates of deposit (CD) and other investments, all of the interest is paid at maturity.

It is most often used to describe bank accounts, certificates of deposit, and other similar investments. It can also refer to the amount, including principal and interest, that the holder of a bond, note, or mortgage is entitled to receive on the maturity date. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Maturity values allow you to estimate the future value of money and thus help you better plan for your future financial needs.

For some certificates of deposit (CD) and other investments, all of the interest is paid at maturity. If all of the interest is paid at maturity, each of the interest payments may be compounded. To calculate the maturity value for these investments, the investor adds all of the compounding interest to the principal amount (original investment). These examples illustrate how the maturity value is calculated based on the original investment or face value, the interest rate or coupon rate, and the length of the maturity period.

Maturity Value Calculator

In general, the higher the principal and interest rate, the higher the maturity value of your investment. Also, the longer the time of investment, the higher the maturity value of your investment. This is because a longer investment horizon gives more time for your money to grow.

Since maturity value is the amount that an investor will get at the contract’s maturity, this is a very useful concept that helps investors see the worth of their investment. They can compare the maturity value of various financial instruments, which will help them make an informed decision. Also, when an investor chooses investments that pay compound interest, they earn interest on the interest because their maturity value gets the compounding effect. But investors should be very careful when choosing a financial instrument and not decide only based on maturity value. Just because an investment is given a higher maturity value does not guarantee that you will receive that money, and there is a probability that the borrower can default. So along with the maturity value, the credit history of a borrower and other factors are also important, and an investor should take care of that also.

The maturity value is the amount of money that you will receive at the end of the investment horizon. The maturity value is affected by three inputs, i.e., principal, interest rate, and time of investment. We have written this article to help you understand the maturity value definition and how to calculate the maturity value. We will also demonstrate some examples of maturity value to help you to understand what the maturity value is. We have prepared the maturity value calculator to help you calculate the final value of your investment at the end of the investment period.

Determining The Maturity Value

The maturity value lets you understand how much money you will make at the end of the investment. To calculate maturity value, you first need to know your investment’s terms (e.g., the amount of money invested, interest rates, and due date). Let’s say you have invested a sum of $10,000 in a Bank for 5 years, and a bank is offering you 10% simple interest and 7.5% compound interest per year on this investment.

As discussed earlier, the nature of the financial instrument also affects the maturity value. Bonds that pay coupons will have a maturity value that equals its par value because all the interest is paid through coupons. As explained above, different financial instruments have different interpretations of maturity value.

Related Definitions

For example, Maturity for a swap transaction is the date of the final cash settlement. For commodity transactions, maturity is when the physical delivery of the commodity happens, etc. So the amount which the investor gets at the maturity date is known as maturity value. The maturity value for simple interest will differ from that for compound interest. Maturity value is the amount payable to an investor at the end of a debt instrument’s holding period (maturity date).

Even with this knowledge, it is still beneficial to use a maturity value as one of many tools in your financial planning. All of these factors can impact how quickly your maturity value will grow and thus how long it will be until you have access to those funds. The best way to determine when you should consider using a maturity value is to assess your financial planning situation. Such calculations can help you see whether or not you will have enough money to cover surprise emergencies, retirement income needs, and other financial goals.

More Definitions of Maturity Value

Maturity values do not account for the possibility of changes to your estimated future benefit. When planning for the future, it is important to understand that there are a variety of factors that can impact how quickly a maturity value grows. It assumes that all principal and interest earned through the end of the term will be reinvested into an account earning a similar rate. Maturity values matter because they can impact your financial planning by clearly showing how much money you will have available at a given time in the future.

Maturity is the date on which the final payment for the financial instrument, like a bond, etc., happens, and there is no more payment that a borrower has to pay afterward. So basically, all the interest and principal amount is paid in full at maturity, and the contract seizes to exist. For most securities like loans and bonds, the maturity value is the same as the per value, but different financial instruments have different definitions of maturity value.