See how a starting amount plus regular monthly savings grows over time when your returns earn returns of their own.
What is compound interest?
With simple interest you only earn on your original deposit. With compound interest you also earn on the interest already added, so growth speeds up every year. Over long periods, time in the market matters more than the exact amount you start with.
The formula
Future value = P x (1 + r/n)nt, where P is the principal, r the annual rate, n the number of compounding periods per year and t the number of years. Regular contributions are added each month and compound from the day they are deposited.
The rule of 72
Divide 72 by your annual return to estimate how many years it takes to double your money. At 6%, money doubles in about 12 years; at 8%, in about 9.
Example
Investing $10,000 today and $250 a month at 6% for 20 years gives about $148,600. You contribute $70,000; compounding adds the other $78,600.
FAQ
What return should I assume?
High-interest savings and GICs pay a few percent; a balanced portfolio has historically returned more but with ups and downs. Use a conservative figure for planning.
Will I pay tax on the growth?
Not inside a TFSA, and not until withdrawal inside an RRSP. See the TFSA calculator.