Introduction: Simple and Compound Interest

Formula: Simple Interest = P×i×n
Where P = Principal Amount
i = rate of interest
n = number of years

Formula: Compound Interest = P {(1 + i)n – 1}
Where, P = Principal
n = number of years
i = rate of interest per period

Key Differences Between Simple Interest and Compound Interest
The following are the major differences between simple interest and compound interest:

The interest charged on the principal for the entire loan term is known as Simple Interest. The interest computed on both principal and the previously earned interest is known as Compound Interest.

Compound Interest gives a high return as compared to Simple Interest.

In Simple Interest, the principal remains constant while in the case of Compound Interest the Principal changes due to the effect of compounding.

The growth rate of Simple Interest is lower than the Compound Interest.

Calculation of simple interest is easy while the calculation of compound interest is complex.