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What is the time value of money (TVM)?

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The time value of money (TVM) is the concept that money available today is worth more than the same amount of money in the future.

While inflation gradually weakens the purchasing power of money, its worth can rise over time by being invested or earning interest.The time value of money is an essential concept in finance and investing.

Based on the interest rate and the time period involved, it is used to determine the present value of future cash flows, such as investment returns or loan repayments. Related: What is opportunity cost?

A definition and examples Several financial calculations — such as future value, present value and annuities — can be used to show the TVM.

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