# How to Calculate Interest on RRSP

by C. Taylor

Registered Retirement Savings Plans (RRSP) offer your Canadian savings account deferred taxation until withdrawal. Contributions to your RRSP are tax deductible at the time of the contribution, which allows you to save taxes during the time you likely make the most money. RRSP accounts build interest just like any other savings account. The amount of interest is calculable using a compound interest formula.

1. Divide the annual interest rate, in decimal format, by the number of compounding periods in the year. If your RRSP savings account only compounds annually, the number of periods will be one. Monthly compounding will have 12 periods per year. As an example, a 6 percent interest rate that compounds monthly equates to 0.005 for each compounding period.

2. Add 1 to this number. In the example, you would get 1.005.

3. Raise this number to the nth power, where "n" is the number of periods. To calculate the number of periods, multiply the number of years you wish to maintain the account by the number of compounding periods. On a business or scientific calculator, you would press the "X^y" key and enter the power factor. In the example, if you maintained the RRSP account for 20 years, you would multiply 20 by 12 to derive 240. Raising the previous figure to this power gives you 3.3102

4. Multiply this figure by your investment total. In the example, if you invested \$20,000, you would have a total of \$66,204.09 in your account.

5. Subtract the original investment to calculate total interest. In the example, you would have accrued \$46,204.09 in interest.

#### Tip

• Whenever you add additional contributions to the account, you will have to recalculate to determine the amount of interest, based on the account's total. Although you can calculate interest from regular, equal payments, RRSP contributions are rarely the same, because the allowed maximum may change each year.