Compound Interest Calculator

The Power of Compound Interest

Compound interest is often called the eighth wonder of the world, and for good reason. Unlike simple interest (which is calculated only on the original principal), compound interest earns returns on both your initial investment and all previously accumulated interest. Over long periods, this creates exponential growth that can turn modest, consistent savings into substantial wealth. The three variables that matter most are the rate of return, the length of time, and the frequency and consistency of contributions.

The Rule of 72 is a quick mental shortcut for estimating how long it takes your money to double. Divide 72 by your annual return rate: at 6%, your money doubles in approximately 12 years; at 8%, roughly 9 years; at 10%, about 7.2 years. This rule highlights why even small differences in return rates have enormous long-term consequences. The difference between a 5% and 7% return over 30 years can mean the difference between $430,000 and $760,000 on a $100,000 starting balance with no additional contributions.

$10,000 Growing at Different Rates (No Additional Contributions)

Assumes annual compounding, no additional contributions, and no withdrawals.

Compounding frequency — how often interest is calculated and added to your balance — also plays a role, though a smaller one than many expect. Daily compounding versus annual compounding at the same nominal rate produces only a modest difference over short periods, but the gap widens over decades. Most Canadian GICs compound annually or semi-annually, while savings accounts and investment portfolios typically compound daily or are marked to market continuously.

When planning for the long term, always think in terms of real (inflation-adjusted) returns. If your portfolio earns 7% nominally and inflation runs at 2.5%, your real return is roughly 4.5%. Over 30 years, $10,000 growing at 7% nominal becomes $76,123, but in today’s purchasing power (at 2.5% inflation), that is equivalent to about $40,700. Using real returns gives you a more honest picture of your future buying power and helps you set more accurate savings targets for retirement, education, or other long-term goals.