💰 Simple vs Compound Interest
Compare simple and compound interest side by side with a live chart and year-by-year table.
Simple vs Compound Interest
Simple interest is calculated only on the original principal each period. Compound interest adds earned interest back to the principal, so future interest grows on a larger base — creating a snowball effect over time.
Worked examples
$10,000 at 5% for 10 years grows to $15,000 with simple interest and to $16,288.95 compounded annually — $1,288.95 more.
Compounding monthly instead of annually adds a further $181.14, reaching $16,470.09, because interest starts earning interest sooner.
What the comparison assumes
Simple interest is calculated on the original principal only, while compound interest adds each period's interest to the balance. The rate is held constant, no deposits or withdrawals occur, and tax and inflation are ignored. More frequent compounding helps but converges: daily and continuous compounding differ by a few basis points only.
Frequently asked questions
- Why does frequency matter at all?
- Each compounding period turns interest into principal. Moving from annual to monthly compounding applies the rate twelve times a year to a slightly larger base, which is why the effective yield exceeds the nominal rate.
- How do I compare two offers with different frequencies?
- Compare the effective annual rate, (1 + r/n)^n − 1: 5% monthly is 5.12% effective, so a 5.1% annual offer is actually slightly worse.
- How long does it take to double my money?
- The rule of 72 approximates it: divide 72 by the annual percentage. At 7% that is about 10.3 years, close to the exact 10.24.