Simple vs Compound Interest: What's the Real Difference?
Simple and compound interest sound similar but produce very different results over time. If you're comparing loan offers or savings products, knowing which one you're looking at matters.
Calculate simple interest
See the interest and total amount on a loan or deposit.
Simple interest: a flat rate on the original amount
Simple interest is calculated only on your original principal, every period, for the life of the loan or deposit. The formula is straightforward: Interest = Principal × Rate × Time. It never changes based on interest already earned or owed.
Compound interest: interest on interest
Compound interest recalculates the balance each period to include previously earned interest, so future interest is calculated on a growing base. Over short periods the difference is small; over years, it becomes significant — this is why long-term savings products almost always use compound interest, and it's also why credit card debt (which compounds) grows so much faster than people expect.
A worked comparison
On the same principal and rate over 10 years, compound interest will always produce a higher total than simple interest, because each year's interest itself starts earning a return under compounding. The longer the time period, the bigger that gap becomes.
Frequently asked questions
Which is better for a loan, simple or compound interest?
Which is better for savings?
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