Simple vs Compound Interest: What's the Difference?
Simple interest is paid only on the original amount. Compound interest is paid on the original amount plus interest already earned, so it grows faster over time.
| Simple interest | Compound interest | |
|---|---|---|
| Formula | P × r × t | P × (1 + r/n)^(n·t) |
| Growth shape | Straight line | Curve that accelerates |
| $10,000 at 7% for 30 years | $31,000 | About $76,100 (compounded yearly) |
| Common uses | Some car loans, short-term notes, bonds' coupons | Savings accounts, investments, credit card debt |
Bottom line
For saving and investing, compound interest works for you. For debt, it works against you — which is why credit card balances snowball.
Try the Compound Interest Calculator