What is the difference between simple and compound interest?.

Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any accumulated interest. This means compound interest can grow your investment faster over time.

Key Facts

• Simple Interest: Calculated as Principal x Rate x Time.
• Compound Interest: Calculated using the formula A = P(1 + r/n)^(nt).
• Time Frame: Compound interest benefits from reinvestment over time.
• Growth: Compound interest can yield higher returns, especially over long periods.

Examples or Use Cases

• Savings Accounts: Banks often use compound interest to calculate returns on savings accounts.
• Loans: Many loans use simple interest for the total amount payable.

FAQs

• Which is better?: Compound interest is generally more beneficial for savings.
• Can I calculate compound interest manually?: Yes, using the formula mentioned.