The one-line difference: simple interest always grows on the original principal; compound interest grows on a growing balance. Everything else — the curve, the gap, the long-term advantage — follows from that single rule.
Both cards use identical principal (₹10,000), rate (8%) and duration (5 years). Load any example to change them.
SI = (P × R × T) / 100
Interest is calculated on the original principal every year — the base never grows.
Dashed line marks the principal. Values are exact outputs of the calculation engine.
A = P(1 + r/n)^(nt)
Interest is added back to the balance, so future interest is earned on a growing base too.
Dashed line marks the principal. Values are exact outputs of the calculation engine.
More interest than simple interest would pay.
With these inputs, compound interest earns ₹693 more than simple interest over 5 years (compounded annually) — about 17.3% more interest on the same principal. The gap grows the longer you stay invested.
| Aspect | Simple | Compound |
|---|---|---|
| Interest calculation basis | Original principal only | Principal + all previously credited interest |
| Growth pattern | Linear | Curved (exponential) |
| Formula | SI = P × R × T / 100 | A = P(1 + r/n)^(nt) |
| Interest earned | ₹4,000 | ₹4,693 |
| Final amount | ₹14,000 | ₹14,693 |
| Compounding frequency | n/a — credited once at the end of each year on the principal | Annually |
| Effect of a longer duration | Interest grows in a straight line — each year adds the same amount | Each year adds more than the year before — the gap widens with time |
| Common applications | Short-term loans, some bonds and informal agreements | Savings accounts, fixed deposits, reinvested dividends, most long-term investing |
Note: this comparison reflects the textbook models above. Real financial products can use different crediting conventions, fees, taxes, rate resets, and withdrawal rules, so actual results can differ.
Over one year at one annual rate, simple and annual compounding are identical — the difference needs at least two crediting periods or fractional credits to appear. From the second year on, compounding pulls ahead, and the gap grows roughly proportionally to rate × time. Short informal loans (simple) vs long-term deposits and reinvested dividends (compound) is the classic split.
Assumptions in this comparison: constant nominal rate, interest left untouched the whole period, no fees or taxes. Real products may differ — see the FAQ.