Canadian compound interest calculator

Open a TFSA at 25 with $200 a month and never miss a contribution. At a 6% long-run return, by 65 the balance is roughly $400,000. You'll have put in $96,000 of that yourself; the other $304,000 is interest on interest. That's compound interest. The math underneath is simpler than most people expect.

This guide explains the math underneath that pattern, the Canadian conventions that make our compounding rules slightly different from the US ones, and how to use the calculator above to model the savings, RRSP, TFSA, FHSA, and GIC scenarios most Canadians actually face.

How compound interest actually works

Compound interest is interest earned on both your original principal and on the interest already added to your balance. Simple interest only ever grows your principal. Compound interest grows everything in the account. The difference is small in year one and large by year thirty.

Three inputs control the result: the starting balance, the rate, and the time horizon. A fourth input, regular contributions, stacks on top: every contribution is itself a tiny new principal that starts earning interest the moment it lands.

When you add a regular contribution, the formula extends to handle a stream of payments (an ordinary annuity if contributions land at the end of each period, or an annuity due if they land at the start). The calculator above uses both forms.

Compounding frequency, and why Canadian mortgages are different

Two banks both quote you 5%. They're not the same. If one compounds annually and the other compounds monthly, the monthly account ends up slightly ahead, because the early-month interest itself starts earning interest by year-end. The relevant number is the effective annual rate: the rate that actually compounds your money once compounding frequency is folded in.

Canadian context: the Interest Act, section 6 requires fixed-rate mortgages issued in Canada to compound semi-annually, not in advance. American fixed mortgages compound monthly. The result is that a Canadian mortgage at the same headline rate produces a slightly lower payment than its US equivalent, because the lender is computing interest from a slightly lower effective rate. Variable-rate Canadian mortgages compound monthly per lender contract because the Interest Act's semi-annual rule applies specifically to fixed terms. GICs in Canada are usually annual or semi-annual; high-interest savings accounts are typically monthly or daily; investment portfolios compound continuously in practice but are simulated as annual in projection tools like this one.

Contribution timing: weekly versus monthly versus annually

If you can spare $6,000 a year for retirement, does it matter whether you contribute $500 monthly, $115 weekly, or $6,000 in a single January lump?

Mathematically, yes, slightly. Every dollar that lands earlier compounds for longer. A January lump beats December monthly contributions because the cash has eleven extra months to earn interest. Weekly contributions edge out monthly because each one starts earning interest a few weeks sooner. The difference is real but small at typical rates.

Behavioural finance trumps mathematical optimization here. The Financial Consumer Agency of Canada recommends "paying yourself first" with automatic transfers; the planning advantage of an automated monthly contribution is far larger than the small interest gained from contributing weekly. Pick the cadence that lines up with your paycheque and stop optimizing.

Inflation: the silent drag on every projection

A nominal return is what your statement says: dollars in, more dollars out. A real return is what those dollars are actually worth in groceries, rent, and gas. The Bank of Canada targets 2% inflation over the medium term, with a target range of 1% to 3%. Realised inflation has run above target since 2021 and is gradually returning to it.

When the calculator above shows a real future value, it divides the nominal future value by (1 + inflation)^years. A 6% nominal return at 2% inflation is roughly a 3.92% real return ((1.06 ÷ 1.02) − 1). Over 30 years, the gap between nominal and real is compounding too, in the wrong direction.

Wealthsimple's planner guidance explicitly recommends modelling in real (inflation-adjusted) returns when projecting retirement: "Otherwise you'll over-estimate what your future balance buys." That's the right framing.

Where compounding does the most work in Canada

Compound interest is theoretical until you put it inside a real Canadian account. Three matter most.

TFSA (Tax-Free Savings Account). All gains and withdrawals are tax-free. Contribution room accumulates from age 18 (or from 2009, whichever is later) and is published annually by CRA. For 2026 the limit is $7,000 and total cumulative room since 2009 is around $102,000. The tax-free growth is what makes the TFSA powerful: a balance compounding at 6% inside a TFSA outpaces the same balance in a non-registered account by the marginal tax rate on the dividends and gains.

RRSP (Registered Retirement Savings Plan). Contributions are tax-deductible, growth is tax-deferred, and withdrawals are taxed as income. The 2026 contribution limit is the lesser of 18% of earned income or $32,490. Best used when your contribution-year tax bracket is higher than your retirement-year tax bracket; the deduction at the higher rate combined with compound growth at the lower future rate is the planning win. Most Canadian RRSPs come with an employer match (50% to 100% on contributions up to a percent of salary) that doubles or near-doubles every dollar you put in. The Globe and Mail's coverage of pension matching consistently flags maxing the match as the highest-yield financial decision most working Canadians can make. If your employer offers one and you're not contributing up to the match percentage, you're leaving free money on the table.

FHSA (First Home Savings Account). Combines the RRSP's contribution deduction with the TFSA's tax-free withdrawal, but only if used for a first home purchase. $8,000 annual contribution room, $40,000 lifetime cap. Especially powerful for first-time buyers in their late 20s who get 5-15 years of compound growth on the way to a down payment.

The Rule of 72

The Rule of 72 is a mental shortcut: a balance roughly doubles in 72 ÷ (annual rate %) years. It's not exact, but it's accurate within a fraction of a year for typical rates and good enough for the back of an envelope.

Use it as a sanity check. If a financial advisor projects your balance doubling every five years at 5%, the math is wrong. If a calculator shows your $10,000 becoming $80,000 in fifteen years at 7%, that's three doublings in fifteen years (15 ÷ 5 ≈ doubling every 5 years, which would require ~14% rate). Wrong by a lot. The Rule of 72 is the ten-second test that catches it.

Frequently asked questions

What rate of return should I assume for a long-term investment?

For Canadian-equity-heavy portfolios, 5-7% nominal is a common planner assumption. The S&P/TSX Composite has averaged around 7% annualized including dividends over the past 30 years; the S&P 500 (in CAD terms) has averaged around 9%. Past performance isn't a guarantee, so erring conservative (5-6%) is sensible for a retirement projection. For GICs, use the current posted rate; for high-interest savings, the same. Bond-heavy portfolios usually project 3-4%.

What's the difference between simple interest and compound interest?

Simple interest only grows your principal: $1,000 at 5% for 10 years simple = $1,500. Compound interest grows your principal AND the interest already added: $1,000 at 5% compounded annually for 10 years = $1,629. The longer the time horizon, the more dramatically compound interest pulls ahead. Most Canadian financial products (savings, GICs, mortgages, investments) use compound interest; only some short-term loans and select credit products use simple interest.

Why do Canadian mortgages compound semi-annually?

It's federal law. The Interest Act of Canada, section 6, requires that any mortgage on real property issued in Canada must compound "yearly or half-yearly, not in advance." American fixed mortgages compound monthly, which means a Canadian mortgage at the same nominal rate produces a slightly lower payment than its US equivalent. The history is that the rule was originally consumer-protective: it forces lenders to quote a rate that means the same thing across institutions, rather than buried-in-the-contract effective rates that vary by compounding choice.

Should I contribute weekly, monthly, or annually?

Mathematically, more frequent (weekly or biweekly) wins by a small amount because each contribution starts compounding sooner. Behaviourally, the cadence that lines up with your paycheque wins by a much larger amount because automated contributions are the ones that actually happen. If you're paid biweekly, automate biweekly. If monthly, automate monthly. Don't overthink the schedule; the discipline is worth far more than the math.

Is the inflation adjustment in this calculator accurate?

Yes for the math (it divides nominal future value by (1 + inflation)^years), but the assumption is the wildcard. The Bank of Canada targets 2% over the medium term and has hit it on average over long periods, but realised inflation has run as high as 8% (2022) and as low as 0% (2009). The 2% default is the central planning assumption; for stress-testing a scenario, try 3% to see how robust your plan is to a higher-inflation environment.

Does this calculator work for TFSAs, RRSPs, or FHSAs?

Yes. Compound interest math is the same regardless of the account wrapper. The wrapper affects taxation (TFSA: tax-free; RRSP: tax-deferred; FHSA: deductible-going-in, tax-free-coming-out-for-a-home), not the compounding itself. Set principal and contribution to match your account's contribution room and limits, set the rate to match the underlying investment, and you'll have a defensible projection. Dedicated TFSA and RRSP calculators that handle contribution-room tracking and tax implications are on the CalcNorth roadmap.

How does the Bank of Canada's interest rate affect my savings?

The Bank of Canada's overnight rate sets the floor for short-term lending in Canada. Banks pass changes through to their prime rate (overnight + ~2.20%) and from there to variable mortgages, lines of credit, high-interest savings accounts, and GICs. When the BoC raises rates, savings yields rise; when it cuts, they fall. The relationship isn't one-to-one and there's a lag, but the direction is consistent. Long-term equity returns aren't directly tied to the BoC rate, though high rates do create competition for capital that can soften equity prices.

What's the most common mistake people make with compound interest?

Underestimating the time horizon. The first ten years of compounding feel disappointing because the curve is still flat. Most people stop or pull money out during that stretch and miss the steep part. Looking at $5,000 + $500/month at 6% over 30 years: at year 5 you've put in $35K and have $40K. At year 15 you've put in $95K and have $158K. At year 30 you've put in $185K and have $542K. The third decade contributes more growth than the first two combined. Stay invested.