Compare simple interest and compound interest.

The major differences between simple interest and compound interest are as follows −

Simple interest

  • It is the percentage interest on total principal amount.

  • Low returns.

  • Principal is constant.

  • Growth of both principal and interest is constant.

  • Interest will be charged only on principal amount.

  • Easy to calculate.

  • Formula: PTR/100.

Compound interest

  • It is the percentage interest charged on principal and accrued interest.

  • High returns compared to simple interest.

  • Both principal and accrued amounts changes because of addition of interest during the period.

  • Principal and interest will grow at pace.

  • Interest will be charged on both principal and interest.

  • Difficult to calculate, when compared to simple interest.

  • Formula = P(1+(r/100))^t – P

Updated on: 26-Sep-2020


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