Compound Interest Calculator

Compound interest is what happens when your interest earns more interest. Year one, you earn interest on your initial deposit. Year two, you earn interest on your initial deposit plus year one's interest. By year 30, most of your wealth comes from the interest the interest earned, not from your contributions.

This is why every personal finance coach (myself included) says the same thing about starting young. Not because compound interest is more powerful in your 20s. It's the same math at any age. But you only get one shot at the time half of the equation.

Realistic return rates to use

• 7% - Conservative, post-inflation real return for a diversified portfolio
• 8-9% - Closer to historical S&P 500 long-term average, post-inflation
• 10-11% - Historical nominal return (ignores inflation). Don't use this for planning.
• 4-5% - For conservative portfolios heavy in bonds, or for retirement withdrawal planning

What this calculator doesn't account for

• Taxes - In a TFSA, growth is tax-free. In a non-registered account, you pay capital gains and dividend taxes. The calculator assumes a registered account (TFSA, RRSP, FHSA).
• Fees - A 1% MER mutual fund will eat into your returns. Subtract your MER from the rate to model real returns.
• Inflation - If you use a real return (post-inflation, like 7%), the result is in today's dollars. If you use a nominal return (10%), the result is in future dollars worth less.
• Market volatility - Real returns aren't smooth. You'll have years up 30% and years down 20%. The average works out over long periods.

This calculator is for educational purposes only. Returns are projections based on the rate you input. Past performance does not guarantee future results.