With simple interest you only earn on the initial capital; with compound interest, you also earn on the interest already accumulated. The gap grows over time.
Fig. 1Compound interest Drag or use ← → Year 10 · $10,000 → $20,097
Initial deposit Simple interest Interest on interest $10,000 at 7% a year compounded monthly, with one stack every 5 years that stops growing when it reaches its year; each coin is $3,000. Simple interest adds the same amount every year ($700), but interest also earns interest: after 30 years the green part adds up to $50,165, more than the deposit and the simple interest combined ($31,000).
This simple vs compound interest calculator compares how your money grows under each method, from an initial capital, an annual rate and a number of years.
The power of compound interest
Reinvesting interest (compound interest) makes a huge difference compared to simple interest over the long run. It’s the foundation of saving and investing: the earlier you start, the more it works for you.
FAQ
What's the difference between simple and compound interest?
Simple interest is always calculated on the initial capital. Compound interest is also calculated on the interest already earned, so growth accelerates over time.
When does the difference matter most?
The longer the term and the higher the interest rate, the bigger the gap. Over a few years there's barely any difference; over decades, compound interest multiplies the result.
Where is compound interest used in real life?
In savings accounts, investment funds, mortgages and any product where interest is reinvested rather than withdrawn — it's the engine behind long-term wealth building.
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