Interest is the extra money paid for borrowing money or as a return on an investment. There are two types of interest: simple and compound. Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and any accumulated interest. This article will explain the differences between these two types of interest.
About Difference Between Simple Interest And Compound Interest
| Simple Interest | Compound Interest |
|---|---|
| Interest is calculated on the principal amount only. | Interest is calculated on the initial principal and also on the accumulated interest of previous periods. |
| Calculation done periodically. | Calculated continuously. |
| No compounding effect. | Compounded at regular intervals. |
| Lesser rate of return than compound interest. | Higher rate of return than simple interest. |
| Ideal for short-term investments. | Suitable for long-term investments. |
| Formula: SI = (Principal x Rate x Time) / 100 | Formula: CI = Principal x (1 + Rate/100)^Time |
— by
Leave a Reply