Canada Compound interest calculator

How compound interest is calculated

Compound interest is interest earned on both the original principal and on accumulated interest from prior periods. The closed-form formula combining a starting balance with regular contributions:

FV = P · (1 + r)n + PMT · ((1 + r)n − 1) / r

P is starting balance, PMT is the contribution per period, r is the period rate (annual rate ÷ frequency), and n is the total number of periods.

Worked example

$10,000 starting balance, $300/month contributions, 7% annual return, 30 years:

• Total contributions: $10,000 + 360 × $300 = $118,000
• Future value: ~$429,000
• Investment growth: $311,000 — over 2.5× the contributions

The same $300/month invested for 30 years has roughly 4× the impact of $300/month invested for 20 years, even though you only contributed 50% more money. This is the most important insight in personal finance: time matters more than rate, and rate matters more than amount.

The rule of 72

A quick mental shortcut for doubling time:

• Years to double ≈ 72 ÷ annual return rate
• At 7%: 10.3 years
• At 9%: 8 years
• At 12%: 6 years
• At 4%: 18 years

Useful for back-of-envelope estimates. The actual formula is log(2) ÷ log(1+r), but 72 is accurate within ±5% for rates between 3% and 15%.

Compounding frequency

$10,000 at 5% annual for one year:

• Annual compounding: $10,500.00
• Monthly: $10,511.62
• Daily: $10,512.67
• Continuous: $10,512.71

More frequent compounding adds only marginally past monthly. Don't lose sleep over frequency — focus on the rate and the time.

Real vs nominal return

The calculator shows nominal growth — your money before adjusting for inflation. If average inflation runs 3%, a 7% nominal return is a 4% real return. Real return is what matters for purchasing power. Stock market historical real returns have averaged around 6–7% for US large-cap equities over very long horizons.

Common mistakes

• Assuming the headline return rate continues forever. Markets are volatile — long-term averages mask multi-year drawdowns of −30% or worse.
• Ignoring taxes. Compound growth in a taxable account is reduced by capital gains and dividend tax. Tax-advantaged accounts (401(k), IRA, ISA, RRSP, super) preserve more.
• Forgetting inflation. $1 million in 30 years has the purchasing power of about $410,000 today at 3% inflation.
• Starting too late. Every decade you wait roughly halves your final balance.

What this calculator doesn't cover

• Variable returns (sequence-of-returns risk)
• Inflation-adjusted (real) projections
• Tax treatment differences between account types
• Dollar-cost averaging vs lump-sum investment dynamics