My finances 10 min

Saving Savvy: Get interested in compound interest

By Fonds de solidarité FTQ

What does the expression "time is money" truly mean? In this first class of a five-part series, Susan, our savings expert, explains why it's better to start saving sooner rather than later.

  • Class introduction

    Everyone procrastinates sometimes. I myself often put off things until tomorrow. In fact, you've just reminded me that I'm out of clean socks.

    But when it comes to saving, procrastination can rob you of a lot of income. And that would be a pity. So how about we use your precious time to your advantage?

    Today, we're going to learn what "time is money" truly means.

    Good reasons for saving

    Before you start your savings, you may ask yourself: why am I saving? To buy a house?

    To retire comfortably?

    Savings are for projects of all shapes and sizes… whether they require a long-term or short-term investment. Such as… planning a trip, renovating your kitchen or going back to school.

    Savings are for projects of all shapes and sizes… whether they require a long-term or short-term investment. Such as… starting a business, planning a wedding, taking a year off or starting a new hobby.

    But it can also be a way to improve your financial freedom, to help you deal with unforeseen events or to buy yourself a little luxury from time to time.

    Savings projects

    Saving up for a project can make the whole process feel more motivating and tangible. It allows you to link realistic financial objectives to your projects. And the sooner you start investing, the more it pays off.

    Savings and the notion of temporality

    Indeed, it's more profitable to start when you're young with small sums than to wait until you're older to invest larger sums.

    Time is the most important factor in building wealth. Every extra year can make a huge difference in the long run!

    Let's take a closer look.

    Compound interest and return

    Let's say you start contributing $1,500 per year to an RRSP when you're 25, and you do so for the next 30 years. With an average annual return of 3.5%, you should have saved $77,434 by age 55. That isn't too shabby.

    If you wait until age 40 to save the same amount, which is the equivalent of $45,000, you will have to contribute $3,000 per year for 15 years. With the same 3.5% average annual return, you'll have accumulated $57,887 at age 55. That's about 25% less than in the first scenario. Quite a big difference, isn't there! And that, my friends, is the impact of compound interest! This means that an amount on which interest is applied will grow faster and faster over time. The interest generated by your initial amount also generates interest. In other words, it grows exponentially.

    If your math skills are a little rusty, know that there are a ton of online calculators such as the one provided by the Fond de solidarité FTQ which can help you estimate your investments' future value.

    Class recap

    So when they say that time is money, it's because if you start saving now, your money will be working for you. But it's NEVER too late to start saving!

    Now you can proudly say that you know how compound interest allows the money you've invested to multiply, ensuring you get the comfortable and cozy retirement you deserve.

    In the next class, I will show you that doing regular budgeting exercises will help you maintain good health… financial health, that is.

Test your skills before moving on to the next class

1. It is better to save with a specific goal in mind.


Speaking of which, we will take a look at emergency funds in the next class.


While it's often more motivating to save for a specific purpose, you can always save without one, which can come in handy if you're ever in a pickle.

2. What is the most important factor in wealth creation?


Obviously, the sum of money you save, the choice of your savings vehicle and your salary all have an impact on your savings. That said, time remains the most important factor in building wealth.


Time is the most important factor in building wealth. In other words, the sooner you start saving, the more your money will grow.

3. Which of the following actions will maximize the growth of my savings?


You are better off investing a small sum at a higher frequency than investing a larger sum less often. As we saw in Class 1, this is due to the compound return.


You will be better off investing a small sum at a higher frequency than investing a larger sum less often.

If you're hiding money under your mattress, we invite you to call 1-800-567-3663 to speak to one of our mutual funds advisors so they can help you.

4. When is the best moment to start saving?


When it comes to savings, there's never a bad time to start.


Ideally, you should be saving at all times. Rain or shine.

5. What is compound interest?


The interest generated by your savings earns interest in turn. That's what we call compound interest.


Compound interest is the interest earned on the interest generated by your savings.

To the next

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Legal notes

About FlexiFonds de solidarité FTQ

FlexiFonds de solidarité FTQ Inc. is a wholly-owned subsidiary of the Fonds de solidarité FTQ. FlexiFonds de solidarité FTQ Inc. acts as the principal distributor of the funds' units and is a mutual fund dealer registered with the Autorité des marchés financiers.

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