Question

How is a compound interest different from simple interest?

The money earned from simple interest can only be accessed after 1 year, while you can access the money earned from compound interest at any time.


Simple interest is when interest is paid on the principal amount only. Compound interest is when interest is paid on the principal amount and on the interest already earned.


Compound interest is when interest is paid on the principal amount only. Simple interest is when interest is paid on the principal amount and on the interest already earned.


The money earned from compound interest is placed into a separate account, while the money earned from simple interest stays within the same account.

Answer 1

Simple interest is when interest is paid on the principal amount only. Compound interest is when interest is paid on the principal amount and on the interest already earned.

Step-by-step explanation:

Simple interest refers to money earned from the principal amount only. Because the principal amount and interest rate remain fixed over time, simple interest earned is a constant figure throughout. The calculation of simple interest is by multiplying the interest rate by the principal amount and the duration.

In compound interest, interest earned is added to the principal amount at the end of a period. The principle increases at the beginning of a period, which means a higher interest is earned. It means the interest earned also earns interests. The interest earned is higher every period.