Savings calculator

Compound interest puts your Canadian dollars to work while you sleep. Over time, your initial deposit can snowball into much more than you realize. Use our savings calculator to find out what setting aside money today could do for your life years from now, and learn how the compound interest formula works.

Savings calculator

• Savings calculator assumptions & disclaimer

  Our savings calculator projects, not predicts, what your savings could be worth in the future. These results are indicative only. We can’t predict every factor that could impact your savings like tax on interest earnings or changes in the interest rate or savings frequency. Our calculation assumes:

  • Interest earned is reinvested back into the account.
  • The interest rate is unchanged throughout the savings period.
  • Interest compounds monthly.
  • Each year is divided into 12 months of equal length, and you make regular savings payments at the start of each month.

What is the compound interest formula?

Here’s the formula for compound interest:

• A – the future value of your money, including earned interest
• P — the initial deposit amount or principal investment
• r — the annual interest rate (as a decimal)
• n — how often interest compounds each year
• t — the number of years the money is invested

For most savings accounts, your interest is compounded monthly, or 12 times per year. For long-term savings products like Guaranteed Investment Certificates (GICs), the formula or compounding period might differ.

How to calculate compound interest on bank savings accounts

The compound interest formula is much simpler if you know your bank savings account balance at the end of the business day. Here’s how most banks calculate compound interest on savings account balances:

With most bank savings accounts, interest begins accumulating when you make a deposit and is calculated on your daily closing balance. Typically, your account will be credited at the end of the month (12 times per year). Earnings can be used or spent the same day.

If you close your account, any accumulated interest is deposited the day it’s closed.

Compound interest formula example

Say you deposit $5,000 into a savings account that pays 1.5% interest. For simplicity, we’ll assume there are no bank fees, and you don’t make any subsequent deposits or withdrawals.

If interest compounds daily, or 365 times per year, here’s what you’d earn over five years:

If interest compounds monthly, or 12 times per year, here’s what you’d earn over five years:

If interest compounds quarterly, or four times per year, here’s what you’d earn over five years:

If interest compounds annually, or once per year, here’s what you’d earn over five years:

Compound interest vs simple interest

Often used to bank savings calculations, compound interest is paid on your initial deposit plus any interest earned. The amount you invest in a savings account earns interest, which is rolled into the total investment. The total investment continues earning interest—only this time, on a bigger balance than before.

Often used for loans, simple interest is only calculated on the original loan amount (the principle). Interest is not part of the calculation.

Compound interest formula FAQs

• How much interest will I earn on $500,000 in a year?

  In Canada, you might earn anywhere from 0.5% to 4% interest on a savings account (sometimes more with a new bank account promotion). So, if you deposit $500,000, you could earn around $2,500–$20,400 in one year. However, this doesn't factor in bank fees, any additional deposits or withdrawals you make or any taxes charged on your interest earnings.

• What is 5% interest on $1,000?

  To calculate 5% simple interest on $1,000, multiply 0.05 by 1,000. The answer is $50. To calculate 5% compound interest on $1,000, you need to know how often interest compounds on your money. For example, if interest compounds daily, 5% interest on $1,000 is $51.27. But if interest compounds monthly, 5% interest on $1,000 is $51.16.

• Do all savings accounts pay compound interest?

  Most savings accounts in Canada pay compound interest, but not all do. Speak with a representative from your bank or read the terms and conditions of your account to find out what types of interest is paid on your balance.

Written by

Stacie Hurst

Associate editor

Stacie Hurst is an editor at Finder, specializing in loans, banking, investing and money transfers. She has a Bachelor of Arts in Psychology and Writing, and she has completed FP Canada Institute's Financial Management Course. Before working in the publishing industry, Stacie completed one year of law school in the United States. When not working, she can usually be found watching K-dramas or playing games with her friends and family. See full bio

Co-written by

Peter Carleton

Writer

Peter Carleton is a freelance writer that covers banking and investing, breaking down what you need to know about where you put your money. When Peter's not thinking about cutting-edge banking apps and robo-advisors, he runs a creative agency and spends his spare time cooking or reading. See full bio