Interest is a fee paid by borrowers to lenders for the use of their money. There are two types of interest – simple interest and compound interest. Simple interest is calculated on the principal amount only, while compound interest is calculated on the initial principal and all accumulated interest. In this article we will discuss the difference between these two types of interest compounded annually on a certain sum.
About The Difference Between Simple Interest And Compound Interest Compounded Annually On A Certain Sum
| Interest Type | Description |
|---|---|
| Simple Interest | Interest is calculated on the original principal only. |
| Compound Interest (Annually) | Interest is calculated on both the principal and accumulated interest from previous periods. |
| Calculation Frequency | Once a year for compound interest, but can be more frequent with simple interest. |
| Growth Rate | Slower than compound interest. |
| Reinvestment of Earnings | No reinvestment of earnings with simple interest. |
| Compounding Periods | No compounding periods with simple interest. |
| Returns | Lower returns than compound interest. |
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