The Power of Compound Interest: Why You Should Start Saving Early

Compound interest isn’t just some finance buzzword—it’s the key reason your future self will thank you for starting to save early. Whether you’re putting $50 a month into a TFSA or investing more aggressively, time does most of the heavy lifting. Here’s why starting now beats waiting for “a better time.”

What Is Compound Interest, Really?

Compound interest is interest you earn on both your original money (the principal) and the interest you've already earned.

Simple interest pays you on your initial deposit only.Compound interest keeps growing on top of itself.

It’s exponential growth—not linear.

Example:

• You invest $1,000 and earn 5% annually.

• After 1 year: $1,050

• After 2 years: $1,102.50

• After 10 years: $1,628.89

• After 30 years: $4,321.94

You more than quadruple your money—without adding a single dollar—just by letting it sit and grow.

Why Starting Early Beats Saving More Later

Let’s compare two people:

Scenario A: Emma

• Starts saving at age 25

• Contributes $200/month until age 35

• Then stops contributing, lets it grow

Scenario B: Liam

• Starts saving at age 35

• Contributes $200/month until age 65

• Never stops

Assuming 7% annual returns:

• Emma ends up with ~$296,000

• Liam ends up with ~$240,000

Emma saved for just 10 years.Liam saved for 30 years.Time beats effort. That’s the power of compound growth.

Where Can You Put Your Money to Compound in Canada?

• TFSA (Tax-Free Savings Account): All growth is tax-free, even when you withdraw. Perfect for long-term investing.

• RRSP (Registered Retirement Savings Plan): Contributions lower your taxes now, and your investments grow tax-deferred.

• RESPs, mutual funds, robo-advisors, ETFs: All can compound if left alone.

Even a high-interest savings account compounds daily—just at a slower pace.

How Often Does It Compound?

Frequency matters. The more often your money compounds, the faster it grows:

• Daily (most savings accounts)

• Monthly (some GICs)

• Annually (common for investing projections)

Compound Interest Works Both Ways

If you’re in debt—especially with credit cards—compound interest is working against you.

A $5,000 balance at 20% interest, unpaid, will double in just over 3.5 years.

So compound interest isn’t always your friend. But if you use it to build, not borrow, it’s incredibly powerful.

No Amount Is Too Small to Start

Think $25 or $50 a month won’t move the needle? It does—because of time.

Even small, consistent contributions:

• Build good habits

• Add up faster than you think

• Give compound interest more years to do its thing

Bottom Line

Compound interest rewards time, not timing. The sooner you start saving or investing, the less you need to contribute to reach the same goal. Don’t wait until you “have more.” Start with what you’ve got and let time do the heavy lifting.