What is the difference between simple and compound interest?

Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus previously earned interest.

Compound interest grows faster when the rate and time period are positive because earned interest starts earning interest too.

When does the difference matter most?

The difference becomes larger with longer timelines, higher rates and more frequent compounding.

Comparison calculator

Compound Interest vs Simple Interest Calculator

Compare simple interest with compound interest using the same principal, rate and timeline. This page is built for the exact “simple vs compound interest” intent.

PrincipalAnnual rate (%)

YearsCompounds per year

Simple interest value

$ —

Compound interest value

$ —

Extra from compounding: $ —

Simple vs compound formula

Simple: A = P × (1 + rt)

Compound: A = P × (1 + r/n)^nt

When the gap becomes large

Longer time. Compounding needs time to show its strength.
Higher rate. More growth means more interest can earn interest.
More frequent compounding. Monthly or daily compounding can lift the result slightly versus annual compounding.

Simple interest calculatorPrincipal-only interest estimate.Compound interest calculatorAdd monthly contributions and frequency.Monthly vs annual compoundingCompare frequency impact.

FAQ

What is simple interest?

Interest calculated only on the starting principal.

What is compound interest?

Interest calculated on the principal plus previously earned interest.

Which is better for savings?

Compound interest is usually better for savings and investing because growth can build on itself.