Investment Details
Balance and interest over time
Investment Breakdown
Calculation Details
Simple vs Compound Interest
Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest. Compound interest grows faster over time, especially with more frequent compounding periods. Canadian banks typically calculate interest on savings accounts using daily compounding with monthly posting. This means interest accrues every day based on your closing balance, and the accumulated interest is deposited to your account once a month. GICs (Guaranteed Investment Certificates) usually compound annually, though some offer monthly or semi-annual compounding. To compare savings accounts and GICs effectively, look at the Effective Annual Rate (EAR) rather than the nominal rate. A savings account advertising 4.00% compounded daily actually yields 4.08% annually, which may outperform a GIC at 4.05% compounded annually. To maximise your interest income in Canada, consider holding your savings in a TFSA (Tax-Free Savings Account), where all interest earned is completely tax-free. High-Interest Savings Accounts (HISAs) offered by online banks like EQ Bank, Tangerine, or Simplii often offer rates 1-2% higher than the Big Five banks. The Bank of Canada's overnight rate directly influences savings rates: when the Bank raises its rate, HISA and GIC rates typically follow within weeks. Remember that interest income held outside registered accounts (TFSA, RRSP) is taxed at your full marginal rate, making it the least tax-efficient form of investment income in Canada.
Year-by-year interest
| Year | Opening balance | Interest earned | Cumulative interest | Closing balance |
|---|---|---|---|---|
| 1 | $5,000.00 | $225.00 | $225.00 | $5,225.00 |
| 2 | $5,225.00 | $225.00 | $450.00 | $5,450.00 |
| 3 | $5,450.00 | $225.00 | $675.00 | $5,675.00 |
How much interest do I earn per month?
Monthly interest on a balance is the balance multiplied by the annual rate divided by 12. On $10,000 at 4.5%, that is $37.50 in the first month. With monthly compounding the next month is calculated on $10,037.50, so each month pays a little more than the last. Switch the results view to Monthly to read the exact interest earned in every single month, the running total, and the balance you finish each month with. Canadian high-interest savings accounts usually accrue interest daily and post it monthly, so the daily compounding option is the closest match for a HISA. Most GICs compound annually, and a simple-interest GIC pays the same dollar amount every year because interest never earns interest. Set the compounding frequency to match the product you are actually comparing: at the same posted rate, daily compounding beats annual compounding by a small but real margin. Interest earned outside a TFSA, RRSP or FHSA is taxed as ordinary income at your full marginal rate, so a monthly interest figure in a non-registered account is a pre-tax number. Inside a TFSA you keep every dollar of it.
Related calculators
Explore these complementary tools to go further:
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Frequently Asked Questions
Last updated: July 2026
The overnight rate is the interest rate at which major banks lend to each other overnight. It directly influences the prime rate that banks charge consumers. When the Bank of Canada raises the overnight rate, variable-rate loans, mortgages, and lines of credit become more expensive. Savings account and GIC rates also tend to rise, benefiting savers.
Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus all previously earned interest, creating a snowball effect. For example, $10,000 at 5% simple interest earns $500 per year forever. With annual compounding, year one earns $500, year two earns $525, year three earns $551.25, and so on.
Reviewed by Alexandre Bernier, CFP®, CIM®
Educational tool - estimates only. Not individualized financial, investment, tax, or legal advice. Using it does not create an advisor-client relationship. Rules and figures change; verify against current CRA sources and consult a qualified professional. Editorial policy →