About Compound Interest Calculator
Calculate how your savings grow with compound interest. Enter your principal, rate, and time to see year-by-year projections with interactive charts. Free, no signup.
How to use
- Enter your starting principal — the lump sum you have available to invest right now. Even a small starting amount grows substantially given enough time and a reasonable rate of return.
- Set the annual interest rate based on your investment type. High-interest savings accounts in Canada currently offer 3-5%, GICs pay 4-5%, bond funds average 3-6%, while diversified equity index funds have historically returned 7-10% annually over long periods.
- Choose your compounding frequency: daily, monthly, quarterly, or annually. Daily compounding earns slightly more than annual — on $10,000 at 7% over 10 years, daily compounding produces about $50 more than annual. Most savings accounts compound daily.
- Add any regular monthly contributions you plan to make. Consistent contributions are where compound interest becomes powerful — $200/month at 7% for 30 years grows to over $227,000, even though you only contributed $72,000 out of pocket.
- Set your investment time horizon in years. Time is the most important variable — at 7%, your money doubles roughly every 10 years (the Rule of 72). A 25-year-old investing $5,000 today has about $80,000 at 65, while a 45-year-old has only $19,000.
- Click Calculate to view your projected growth with a detailed year-by-year breakdown chart showing how earned interest grows larger each year, illustrating the exponential nature of compounding.
- Experiment with different scenarios by adjusting the rate, contributions, or time period to find the optimal savings strategy for your situation.
Frequently asked questions
How does compound interest work?
Compound interest earns interest on both your original deposit and on all previously accumulated interest. In year one, $10,000 at 7% earns $700. In year two, you earn 7% on $10,700, which is $749. By year 10, your annual interest exceeds $1,300 even though your deposit never changed. This snowball effect accelerates over time, which is why starting early matters more than starting with a large amount. The formula is A = P(1 + r/n)^(nt), where P is principal, r is rate, n is compounding frequency, and t is time in years.
What is the difference between compound and simple interest?
Simple interest is calculated only on the original principal — $10,000 at 5% simple interest earns exactly $500 every year, totaling $15,000 after 10 years. Compound interest is calculated on the principal plus all accumulated interest — the same $10,000 at 5% compounded annually grows to $16,289 after 10 years. Over 30 years, the gap becomes enormous: simple interest yields $25,000 while compound interest yields $43,219. This is why virtually all savings accounts, GICs, and investment returns use compound interest.
How much will $10,000 grow in 10 years with compound interest?
At 5% compounded annually, $10,000 grows to $16,289. At 7%, it reaches $19,672. At 10%, it hits $25,937. Adding monthly contributions changes the outcome dramatically — $10,000 plus $200/month at 7% grows to about $54,000 in 10 years. The key variable is time: $10,000 at 7% becomes $38,697 in 20 years and $76,123 in 30 years without any additional contributions.
How often should interest be compounded?
More frequent compounding produces higher returns, but the differences are modest. On $10,000 at 7% over 10 years: annual compounding yields $19,672, monthly yields $20,097, and daily yields $20,138. The jump from annual to monthly is meaningful ($425), but monthly to daily adds only $41. Most high-interest savings accounts in Canada compound daily while GICs typically compound annually or semi-annually. Focus on getting a higher rate rather than chasing compounding frequency.
What is the Rule of 72?
The Rule of 72 is a mental math shortcut to estimate how long it takes to double your money. Divide 72 by your annual return rate: at 6%, money doubles in about 12 years; at 8%, about 9 years; at 10%, about 7.2 years; at 12%, about 6 years. The rule is accurate for rates between 4% and 15%. It also works in reverse — if you want to double your money in 5 years, you need approximately 72/5 = 14.4% annual return.
How do taxes affect compound interest in Canada?
In a regular non-registered account, interest income is taxed at your full marginal rate each year, significantly reducing effective compounding. At a 30% marginal rate, a 5% return effectively becomes 3.5%. This is why registered accounts are powerful — TFSA growth is completely tax-free forever, and RRSP growth is tax-deferred until withdrawal. The 2025 TFSA lifetime contribution limit is $95,000 per person. Maximizing your TFSA before investing in taxable accounts gives compound interest its full effect.
What is a realistic rate of return for long-term investing?
Historical averages after inflation: high-interest savings accounts return 1-2% real, government bonds 2-3% real, balanced funds 4-5% real, and diversified equity index funds 6-7% real. The S&P 500 has returned roughly 10% nominal (7% real) annually over the last 50 years. For retirement planning, most Canadian financial advisors use 5-6% as a conservative assumption for a balanced portfolio. Using this calculator with multiple rate scenarios gives you a range of outcomes rather than a single overconfident projection. Pair it with the
Savings Goal Calculator to set the monthly contribution needed to hit a specific target.
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