Compound Interest
Calculator Canada 2026

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which is only calculated on the original amount, compound interest means your money earns interest on interest. Over long time horizons this creates exponential growth, which is why it is often called the most powerful force in personal finance.

Canadian investors encounter compound interest in high-interest savings accounts (HISA) at 3.5% to 4.5%, Guaranteed Investment Certificates (GICs) at 4% to 5%, TFSA and RRSP investments, and non-registered brokerage accounts. Canadian banks typically compound savings account interest daily and credit it monthly. GICs may compound annually or semi-annually depending on the term.

The Tax-Free Savings Account (TFSA) allows Canadians 18 and older to earn investment income completely tax-free. The 2026 annual contribution limit is $7,000 (cumulative lifetime limit of approximately $102,000 for those eligible since 2009). All interest, dividends, and capital gains earned within a TFSA are never taxed, making it the most powerful compound-growth account for most Canadians. Withdrawals are also tax-free.

A Registered Retirement Savings Plan (RRSP) lets you contribute up to 18% of your previous year earned income (to a maximum of approximately $32,490 in 2026) and deduct contributions from taxable income. Investments grow tax-deferred inside the RRSP, meaning compound interest is not reduced by annual taxes. You pay tax only when you withdraw, ideally in retirement when your income and tax rate are lower.

The Rule of 72 is a simple formula to estimate how many years it takes for an investment to double in value. Divide 72 by the annual interest rate to get the approximate doubling time. At 5% per year (typical GIC rate), your money doubles in roughly 14.4 years. At 8% (approximate long-term TSX return), about 9 years. At 10%, roughly 7.2 years. This rule works best for rates between 2% and 15%.

Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus accumulated interest. For example, $10,000 at 7% simple interest earns $700 every year. With compound interest, year one earns $700, year two earns $749 (7% of $10,700), and so on. Over 20 years, simple interest gives $24,000 while compound interest gives approximately $38,697.

The S&P/TSX Composite Index has historically returned approximately 8% to 9% annually over long periods when including reinvested dividends. The TSX is heavily weighted toward financials (Big Five banks), energy, and mining. Canadian dividend stocks are popular because of the dividend tax credit, which makes eligible Canadian dividends taxed at a lower rate than interest income when held outside registered accounts.

The Registered Education Savings Plan (RESP) combines compound interest with the Canada Education Savings Grant (CESG), where the federal government matches 20% of contributions up to $500 per year per child (lifetime maximum of $7,200 in grants). The CESG itself also earns compound returns inside the RESP. Starting at birth with $208 per month at 7% return, a child could have over $100,000 for post-secondary education by age 18.

As of early 2026, Canadian GIC rates range from approximately 4.0% to 5.0% depending on the term and institution. One-year GICs typically offer 4.0% to 4.5%, while 3 to 5-year terms may offer 4.5% to 5.0%. Online-only banks and credit unions often offer higher rates than the Big Five banks. GICs are eligible for CDIC insurance up to $100,000 per category per institution, making them essentially risk-free.

Inflation erodes the real purchasing power of your returns. If your investment earns 7% and inflation is 3%, your real return is roughly 4%. The Bank of Canada targets 2% inflation, though recent years have seen higher figures. When planning for retirement or long-term goals, subtract the expected inflation rate from your nominal return to estimate real growth. A TFSA earning 5% with 2% inflation delivers about 3% in real purchasing power growth.