Difference Between Simple Interest and Compound Interest

There are a few differences between simple interest and compound interest which separate one from the other. To recall, 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. .

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.

Check out the detailed interest formulas here.

Below you can find the key differences between Simple Interest and Compound Interest in the tabular column below:

Simple Interest and Compound Interest Differences
Parameter Simple Interest Compound Interest

Definition

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.

Formula

S.I. = P × T × R ⁄ 100

C.I. = P(1+R⁄100)t − P

Return Amount

The return is much lesser when compared to Compound Interest.

The return is much higher.

Principal Amount

The principal amount is constant

The principal amount keeps on varying during the entire borrowing period

Growth

The growth remains quite uniform in this method.

The growth increases quite rapidly in this method.

Interest Charged

The interest charged on is for the principal amount.

The interest charged on it is for the principal and accumulated interest.

Check SI and CI Calculators:

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