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Zions Direct University: Time Value of Money

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This story is sponsored by Zions Direct. Learn more about Zions Direct.


The principle behind time value of money is that a dollar today is worth more than a dollar received in the future because the dollar today can earn interest. If a dollar is invested, it has what is called "earning potential," which means it has the potential to earn interest or other appreciation over time.

As described in the video, fixed income investments, like bonds, exemplify the use of time value of money. Because you earn interest on the bond, the longer your money is invested, the more money you can earn. For example, if you had $1,000 and decided to purchase bond with a 3% annual interest rate for one year, at the end of the year you would have $1,030.