Compound Growth and the Time Value of Money (Canada)
How your money earns on its own earnings, how long it takes to double, what five years of waiting costs, and what inflation leaves you with.
You've got money going into an investment account and years to go before you'll touch it. What you earn stays in the account and earns alongside your own deposits, so the balance grows faster the longer you leave it alone. That's why time matters more than the size of your monthly deposit, and why most of the growth shows up near the end. Starting five years late costs you far more than the five years of deposits you skipped.
Key takeaways
- Your earnings start earning too. That's all compounding is, and it's why your balance curves upward instead of climbing in a straight line.
- At 6% your money takes about 12 years to double. Divide 72 by any rate for the same rough answer.
- Ten years of deposits in your twenties can do nearly what thirty years from thirty-five would do, and cost you a third as much.
- Prices climb on the same curve, so what your balance buys you matters more than the number you see on it.
Growth on top of last year's growth
Put $1,000 somewhere paying 6% and after a year you've got $1,060. In year two you don't earn 6% on your $1,000. You earn it on your $1,060, so you get $63.60 instead of $60. That extra $3.60 is small enough to ignore in year two. Leave the same $1,000 alone for thirty years at 6% and you've got about $5,700. If you'd taken your $60 out every year and spent it, you'd have $2,800. The other $2,900 came from earning on your earnings.
None of that happens for you unless your money stays in. If your account pays you interest and you spend it, you're earning on the same balance every year and your total climbs in a straight line. Leave your earnings alone and the balance you're earning on gets bigger every year, and so does the amount it adds.
How long does it take money to double?
Take 72, divide it by your yearly rate, and the answer is roughly how many years your money needs. At 6% that's 12 years for you, at 3% it's 24, at 8% it's 9. The shortcut is close enough to use in your head. With monthly compounding at 6% your actual figure is 11.6 years rather than 12.
Each of your doublings is bigger than the one before it. Say you've got $10,000 growing at 6%. You're at $20,000 in about twelve years, $40,000 in twenty-three, $80,000 in thirty-five. Your first doubling added $10,000. Your third added $40,000, on the same money at the same rate, without another dollar from you.
If you're forty, your third doubling can feel like it belongs to somebody else. Your whole balance doesn't have to get there. Money you put in at forty still has twenty-five years in front of it before a normal retirement, and at 6% that's two doublings for you.
Why the last ten years look nothing like the first ten
Put $500 a month away for twenty-five years at 6% and you've got about $346,500. You paid in $150,000 of it. Your other $196,500 is growth. Those figures are illustrative, and the 6% is a round assumption rather than a forecast of what you'd actually earn.
The timing matters more than the total. Five years in, growth is 14% of your balance and the rest is money you put there yourself. By fifteen years you're at 38%, and by twenty-five you're at 57%. For your first decade this looks like a savings account with a poor rate. Your balance changes later, and you do nothing differently to make that happen.
That's also why people give up on it early. Four years in, your balance sits barely ahead of what you've paid in, and nothing on your screen looks like it's working yet.
Is it better to start early or to save more later?
Neither one wins outright, and that's the honest answer to your question. Picture two people putting away $250 a month at 6%. One starts at 25 and stops at 35, then never adds another dollar. The other starts at 35 and keeps going to 65.
At 65 the early saver has about $246,700 from $30,000 of deposits. The later saver has about $251,100 from $90,000. So the later one ends ahead, by roughly $4,400, and paid in three times as much to get there.
Ten years of deposits in your twenties do nearly the work of thirty years from thirty-five, and the same gap opens for you at any pair of dates. If you're past thirty-five already the arithmetic still runs, it just leans harder on what you put in and less on how long you leave it.
You can put a number on what waiting costs you. That $500 a month at 6% builds about $346,500 over twenty-five years and about $231,000 over twenty. Five years of waiting costs you around $115,000. The deposits you skipped in those five years add up to $30,000, so your gap is close to four times the money you didn't put in.
What will that money buy in 25 years?
Less than your balance says. The Bank of Canada aims to hold inflation at 2%, the midpoint of a 1% to 3% range.1 Run 2% against your $346,500 and in twenty-five years it buys you roughly what $211,200 buys you today. You still have every dollar. Each one just buys less than it does now.
You can check that against what's already happened. A basket of goods that cost $100 in 2000 cost $172.13 in 2025, which works out to 2.20% a year across those twenty-five years.2 That sits a shade higher than the target, over a stretch that included the sharp price rises of the early 2020s. So 2% is close to what has actually happened over a long stretch.
Two things follow from that. A 6% return against 2% inflation leaves you about 4% of growth your money can actually buy more with, so what you get to spend is smaller than what your statement shows you. And money you hold in cash for a long stretch loses buying power, even in the years your balance never falls.
Tax, fees, and the years you skip
Three things in Canada change how much of this you keep.
Which account it's in. Inside a registered account nothing is taxed while it grows, so your whole balance keeps compounding year after year. Registered means the plans the government lets you shelter money in: retirement savings, tax-free savings, a first home, a child's education, a disability. Hold the same investment outside all of those and you're taxed on some of your growth as you go, which leaves you a smaller balance earning next year. How much smaller depends on what your investment pays you, and what tax takes from interest, dividends and gains is a subject of its own.
What your fund charges. Every fund you own charges you a management expense ratio every year, usually shortened to MER. It covers the fund's total costs, charged to you as a percentage of what the fund holds.3 It comes off your return before the number reaches your statement, every year, on your whole balance. One percentage point of it turns your $346,500 into about $297,800 over the same twenty-five years. You'd be $48,700 short, or 14% down on what you'd otherwise be holding.
The years you skip. Cash out and start again and you reset the part of your balance you took, along with every year it had already run for you. Selling is often the right call anyway. What's easy to miss is the second half of that, because the withdrawal shows up on your statement and the years never do.
Nobody can hand you the rate. The 6% here is a round assumption, and what your next twenty-five years actually pay is not something anyone can tell you. You can check your own side of it today. Your fund's MER sits in its Fund Facts or ETF Facts document.3
What changes when you put your own numbers in
The $500-a-month figures here all run at 6% over twenty-five years. You've got three numbers of your own to put in: the amount, the rate and the years. Change your monthly amount and what you end up with moves in proportion with it. Change your years and it moves a great deal faster than that.
How long each of these three has
What separates these three is how long each of them has before they spend the money, and the same question sets your own answer. That's the figure to measure yourself against, more than the income or the monthly amount.
Maya, first real job, renting. Her raise landed and a month later she couldn't say where it had gone. That story is "The Raise". $150 a month from 24 to 65 at 6% comes to about $319,000, on $73,800 of her own deposits. Her next step is picking the smallest amount she won't cancel and moving it on payday.
Nadia and Theo, two small kids, a tight month. "Treading Water" opens four days before payday with their account already empty. Money set aside for emergencies comes first for them, and how big that needs to be is their earlier question. Once it's there, $50 a month from 36 to 65 is about $46,700 on $17,400 paid in, and starting that same $50 at 46 gets them about $21,200. So what they do first is the emergency money, at whatever pace fits, and the $50 waits behind it.
Joanne, teaching a few more years. In "Counting What's Already There" she adds up what a year of retirement costs, and at 61 it's easy to assume the growing part is finished. Money she won't spend until she's 80 still has nineteen years in front of it, and $50,000 left alone at 6% over nineteen years comes to about $155,900. What Joanne sorts out next is which of her money she needs in the next three years and which she doesn't.
The honest version of start early
Most people in their twenties land on a small automatic amount rather than a big one, because they have more years than money, and because they can keep a small transfer going through a bad month. In their forties and fifties it usually goes the other way: more each month, and a harder lean on the accounts that shelter the growth from tax, since the years are the one part they can't add to any more.
Starting at fifty-five isn't a waste of anybody's time either. Nineteen or twenty years still clears one full doubling at 6%. Whichever of those is nearer to you, the arithmetic is the same. What changes is how much of your ending comes from the years and how much from the amount you put in.
None of it applies to money you need inside a few years. There isn't enough time for growth to do much for you, and a market that falls the year before you spend it leaves you short. Most people keep money like that somewhere safe they can get at quickly, because a fixed date and a market that moves don't sit well together. For money like that, saving to a date is the arithmetic that works.
Common questions
Is 6% a realistic return in Canada?
It's a round number, not a promise, and no one can promise you one. Run your own years at 4% and again at 8% and you'll see how much of your answer rests on it.
Does compounding work the same way in a savings account?
Your arithmetic is identical, but the rate is usually much lower, and you're taxed on interest in a regular account each year as you earn it. A lower rate stretches your doubling time a long way. At 3% your money takes about 24 years to double instead of about 12.
Does it matter whether I use a TFSA or an RRSP?
Both shelter your growth from tax while it stays inside, so your whole balance keeps compounding. They differ on when you pay the tax, going in or coming out.
I'm 45. Is it too late for this to matter?
Twenty years to 65 clears a full doubling at 6%, and money you won't spend until your eighties has longer than that. What changes is the mix: at 45 the amount you put in does more of the work and the calendar does less.
Do I have to reinvest my dividends?
For this to work your earnings have to stay in. A dividend you take as cash and spend stops growing for you at that point, while one that buys you more units keeps earning alongside everything else you've got.
Further reading
A Canadian teacher's case for low-cost index funds and long holding periods, written for people who would rather not think about it every week.
- The Simple Path to Wealthby JL Collins
The argument for one fund, low costs and leaving it alone, at its plainest. The account names are American; the arithmetic is not.
Sources
- Bank of CanadaMonetary policy: the inflation-control target is the 2% midpoint of the 1% to 3% control range, set jointly with the federal government. Accessed 2026-09-03.
- Bank of CanadaInflation Calculator: a basket of goods costing $100 in 2000 cost $172.13 in 2025, an average of 2.20% a year. Built on Statistics Canada consumer price index data. Accessed 2026-09-03.
- Canadian Securities AdministratorsTypes of Fees: what a management expense ratio covers, that investment fees reduce the returns in your portfolio, and that a fund's MER is set out in its Fund Facts or ETF Facts document. Accessed 2026-09-03.
Educational, not financial advice. Figures verified against primary sources on the date shown.
Where the tax lands on all this: what you owe when you finally sell. For the income an investment pays you while you hold it, there's dividend investing in Canada. The rest of it sits in the investing hub.