Saving & retirement · guide
Compound interest in 2026: how it works, with a worked example
Enter what you have, what you add each month and the return you expect. See what it grows to, how much of that is growth rather than your own money, how fast it doubles, and what one small change in each input would do.
How this calculator works
Each month the balance grows by the month’s share of the yearly return, then your contribution is added. The yearly return is converted to a monthly rate that matches the compounding you chose, so “6% compounded monthly” and “6% compounded yearly” give slightly different results, exactly as a bank would calculate them.
The chart separates what you put in from what growth added. The gap between the two lines is compound interest at work.
Worked example: starting early beats saving more
Two savers earn the same 6% a year, compounded monthly.
| Saves | For | Puts in | Ends with | |
|---|---|---|---|---|
| Starts at 25 | $200 a month | 40 years | $96,000 | $398,298 |
| Starts at 40 | $400 a month | 25 years | $120,000 | $277,198 |
The second saver contributes more money and still finishes behind, because the first saver’s early dollars had fifteen more years to double.
Assumptions
- Contributions are made at the end of each month and the return is the same every year. Real markets vary; the average return over long periods is what this models.
- Returns are before tax and fees. Use a net-of-fee rate for investments.
- “Raise the monthly amount each year” grows the contribution once a year, like a raise you keep saving.
Questions people ask
- What is compound interest?
- Interest earned on interest. In year one you earn a return on what you put in; in year two you earn a return on the original amount plus year one's growth, and so on. Over long periods the growth on growth becomes the largest part of the balance.
- What return should I use?
- For a savings account or GIC, the rate you are offered. For investments, FP Canada's 2026 guideline is about 5% for a balanced portfolio and 6% for equities before fees; subtract your fund's fee. Try a lower number too, so you can see how sensitive the result is.
- Does the compounding frequency matter much?
- Less than people expect. At 6%, monthly compounding gives an effective 6.17% a year versus 6.00% for annual: about $170 more on $100,000 after one year. The rate itself and the number of years matter far more.
- What is the rule of 72?
- A quick way to estimate doubling time: divide 72 by the annual return in percent. At 6% money doubles roughly every 12 years; at 9%, every 8. The calculator shows the exact figure next to it.
- Is the growth taxed?
- Inside a TFSA, RRSP, FHSA or RESP, no tax applies while the money grows. In a regular account, interest is fully taxed each year at your marginal rate, and dividends and capital gains are taxed at lower effective rates. The calculator shows pre-tax growth; use the GIC vs HISA tool to see the after-tax effect of your rate.
- Why show today's dollars?
- Because $500,000 in 30 years buys much less than $500,000 today. Entering an inflation rate, 2.1% under the 2026 guidelines, shows what the future balance is worth in today's purchasing power.
Sources
Every figure on this page comes from one of these primary sources. Data last verified .