The difference between simple interest and compound interest is important to understand the key differences between Simple Interest and Compound Interest are important to remember and understand what separates one from the other. Simple interest can be defined as the principal amount of loan or deposit, a person makes into their bank account. The Compound interest is simply the interest that accumulates and compounds over the principal amount. Thus, this is the key difference between the two types of Interest. It is important to know the Interest Formula to solve for such problems.
Difference between Simple Interest and Compound Interest
There are two different formulas that segregate the difference between Simple Interest and Compound Interest. The formula for simple interest is:
Simple Interest = Principal amount (P) x Interest Rate (I) x Term of loan or deposit (N) in years
Similarly it is also possible to calculate the formula for the compound interest as well, the formula for the compound interest can be calculated as:
Compound Interest = Total amount of Principal and Interest in future less Principal amount at present.
Below you can find the key differences between Simple Interest and Compound Interest in the tabular column below:
Difference between Simple Interest and Compound Interest 


Simple Interest 
Compound Interest 
Simple Interest can be defined as the sum paid back for using the borrowed money, over a fixed period of time. 
Compound Interest can be defined as when the sum principal amount exceeds the due date for payment along with the rate of interest, for a period of time. 
The return is much lesser when compared to Compound Interest. 
The return is much higher. 
The principal amount is constant 
The principal amount keeps on varying during entire borrowing period 
The growth remains quite uniform in this method. 
The growth increases quite rapidly in this method. 
The interest charged on is for the principal amount. 
The interest charged on it is for the principal and accumulated interest. 
If you liked this article, then download the BYJU’s app for more articles! You may also want to check out our related articles:
Practise This Question