Compound Interest Calculator

Compound interest is interest earned on interest. In year one your deposit earns a return; in year two, both the deposit and last year's return earn a return. Left alone long enough, the interest ends up doing most of the work, which is why the chart above curves upward instead of climbing in a straight line.

Albert Einstein is often credited with calling compound interest "the eighth wonder of the world." Whether or not he actually said it, the idea holds: those who understand compounding earn it, and those who don't, pay it (usually to a credit card company).

Divide 72 by your annual return and you get the approximate number of years it takes your money to double. At 8%, that's about 9 years. At 3%, it's 24 years. This simple mental shortcut shows why the rate you earn matters so much over long periods.

Investor Mohnish Pabrai likes to frame wealth this way: it's all about the number of doublings you can string together. Ten doublings turns $10,000 into roughly $10 million. The catch is that the biggest doublings come last, so the game rewards people who start early and stay in.

Warren Buffett has said "my wealth has come from a combination of living in America, some lucky genes, and compound interest." He bought his first stock at 11 and still jokes he started too late. Over 99% of his net worth was built after his 50th birthday, which is compounding in action, not stock-picking magic.

The lesson from Buffett, Pabrai, and virtually every long-term investor is the same: time in the market beats timing the market. The most valuable input in the calculator above isn't the rate, it's the years.

Historically, the broad stock market has returned around 10% per year before inflation (roughly 7% after), while GICs and high-interest savings accounts typically earn much less. A conservative planning number for a diversified portfolio is 5% to 7%. Past performance never guarantees future results, so it pays to run the calculator with a pessimistic and an optimistic rate.

One more thing worth knowing: where you compound matters as much as how fast. Growth inside a TFSA is completely tax-free, and an RRSP defers tax for decades. If you'd like help choosing the right account for your situation, call me at (905) 814-0111 and I'd be happy to walk you through it.