Simple vs compound
Simple: A = P(1 + r·t)
Compound: A = P(1 + r/n)n·t
Over short periods the two are similar; over long periods, compound interest pulls well ahead.
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus previously earned interest, so it grows faster over time.
How is simple interest calculated?
Simple interest = principal × rate × time. The total is principal + interest.
How is compound interest calculated?
Total = principal × (1 + rate ÷ n)^(n × years), where n is how many times per year interest compounds.