Simple vs Compound Interest
Simple interest
Interest is calculated on the original principal only, every period. Growth is a straight line.
Compound interest
Interest is added to the balance and then earns interest itself. Growth is a curve that steepens over time.
| Simple interest | Compound interest | |
|---|---|---|
| Formula | Principal × rate × time | Principal × (1 + rate)^periods |
| $10,000 at 5% for 10 years | $15,000 total | $16,289 total (annual compounding) |
| Growth pattern | Same interest amount every year | Interest grows every year |
| Where you meet it | Some personal loans, car loans, short-term lending | Savings accounts, investments, credit cards, mortgages |
| Good for you when… | You are the borrower | You are the saver or investor |
The bottom line
The difference feels small over a year or two and enormous over decades — that curve is why starting to save early matters so much, and why credit-card debt grows so fast. Run your own numbers in both calculators below and compare the totals.