With annuities, you invest a little at a time.  We invested a total of \$1200.

Let's compare this to a one-time investment like the one's we did in the last section:

If we make a one-time investment of \$1200 at 12% compounded monthly, how much will we have at the end of one year?

Remember the formula:

initial amount = \$1200

At the end of each period (every month), we'll be earning 1%...
So, each
\$1.00 will turn into \$1.01...

growth factor = \$1.01

number of periods = 12

Hey, we made more money!  Isn't it better to invest a little at a time?

The reason we made more money is that the \$1200 went in at the BEGINNING of the year.  So, the balance was higher the whole year.

BIGGER BALANCE = MORE INTEREST

But, the realistic question is:  Would you HAVE the whole \$1200 at the beginning of the year?  If the answer is "yes," then invest the whole thing.  If the answer is "no," then do it a little at a time.  This is usually easier for most people.

 If the amount you want to invest is realisticfor you (like only \$100 a month as opposedto a chunk of \$1200), then you are far morelikely to invest it!

By the way, the term "annuity" is used when something pays YOU a little each month, too.  It works both ways.  (But, be careful because some people use the word "annuity" as a cloak for bad insurance investments!  You can read more about this on Finance FREAK.)