Calculate the potential growth of your tax-free savings over time.
Projected Growth
Total Value After
—
Assuming tax-free growth
Understanding Tax-Free Savings Accounts
Tax-free savings accounts, such as the Tax-Free Savings Account (TFSA) in Canada or similar accounts in other countries, are powerful financial tools designed to help individuals grow their investments without incurring taxes on the earnings. This means that any interest, dividends, or capital gains generated within the account are not subject to income tax, making them highly efficient for long-term wealth accumulation.
The calculator above estimates the future value of your investments in a tax-free account by considering your initial deposit, regular annual contributions, the annual interest rate, and the number of years you plan to invest.
How the Calculation Works:
The calculation uses a compound interest formula, adapted to account for annual contributions. For each year, the growth is calculated on the balance from the previous year, plus any new contributions made. The formula can be broken down as follows:
Starting Balance: Your initial deposit.
Annual Contributions: The fixed amount you plan to add each year. For simplicity, this calculator assumes contributions are made at the end of each year.
Interest Rate: The annual percentage rate of return your investment is expected to yield.
Investment Period: The total number of years the money will be invested.
The core of the calculation involves compounding: the interest earned in one period is added to the principal, and then the next period's interest is calculated on this new, larger principal. This process is repeated year after year. The formula used for this calculator is a variation of the future value of an ordinary annuity combined with the future value of a lump sum, calculated iteratively for accuracy across the years.
Specifically, for each year n, the balance B_n is calculated as:
B_n = (B_{n-1} + Annual Contributions) * (1 + Interest Rate),
where B_0 is the Initial Deposit. This iterative process accounts for both the compounding of the existing balance and the addition of new funds.
Use Cases for Tax-Free Savings:
Emergency Fund: Grow savings for unexpected expenses while keeping them accessible and tax-free.
Retirement Planning: Supplement traditional retirement accounts by accumulating additional tax-free funds.
Major Purchases: Save for a down payment on a house, a new car, or other significant goals without tax erosion.
Short to Medium-Term Goals: Achieve goals like vacations, education expenses, or home renovations with tax-sheltered growth.
By utilizing tax-free savings accounts and understanding their growth potential through tools like this calculator, individuals can make more informed decisions to effectively manage and grow their wealth.
function calculateTaxFreeGrowth() {
var initialDeposit = parseFloat(document.getElementById("initialDeposit").value);
var annualContributions = parseFloat(document.getElementById("annualContributions").value);
var interestRate = parseFloat(document.getElementById("interestRate").value) / 100; // Convert percentage to decimal
var investmentPeriod = parseInt(document.getElementById("investmentPeriod").value);
var totalValue = 0;
var currentBalance = 0;
// Validate inputs
if (isNaN(initialDeposit) || initialDeposit < 0 ||
isNaN(annualContributions) || annualContributions < 0 ||
isNaN(interestRate) || interestRate 1 ||
isNaN(investmentPeriod) || investmentPeriod <= 0) {
document.getElementById("result").innerHTML = "Invalid input. Please enter valid numbers.";
return;
}
currentBalance = initialDeposit;
for (var year = 1; year <= investmentPeriod; year++) {
// Add annual contributions (assuming end-of-year contribution for simplicity)
currentBalance += annualContributions;
// Compound interest
currentBalance *= (1 + interestRate);
}
totalValue = currentBalance;
// Format the result to two decimal places
document.getElementById("result").innerHTML = "$" + totalValue.toFixed(2);
}