How compound interest works
Each month the interest is added to your balance, and the next month's interest is earned on the bigger balance. Over long periods this "interest on interest" can be worth more than the deposits themselves.
P = starting amount, D = monthly deposit, r = yearly rate ÷ 12, n = months
Worked example
Starting with $5,000 and adding $200 a month at 4% for 10 years, you pay in $29,000 and end with $36,904.12: $7,904.12 of that is interest. A one-off $10,000 at 5% for 10 years, compounded monthly, grows to $16,470.09.
Tax on savings interest
In Canada, interest earned outside a registered account is taxable income: it is added to your other income and taxed at your marginal rate each year. Interest earned inside a Tax-Free Savings Account (TFSA) is tax free, and inside an RRSP it is taxed only when you withdraw it. Use the income tax calculator to see your marginal rate.
Frequently asked questions
How much will $10,000 grow in 10 years?
At 5% compounded monthly, about $16,470. At 4% it would be about $14,908.
Does compounding monthly make a difference?
Yes, a little. $10,000 at 5% compounded monthly earns $511.62 in a year, compared with $500 compounded yearly.
How much interest does $200 a month earn?
Saved for 10 years at 4%, $200 a month ($24,000 in total) grows to about $29,450, so roughly $5,450 is interest.
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Last updated October 2026.