What is the difference between compound and simple interest?

Simple interest is calculated only on the original principal amount. Formula: I = P × r × t. Compound interest is calculated on the principal and on all accumulated interest from previous periods, meaning you earn 'interest on interest.' This makes compound interest significantly more powerful over time. For example, $10,000 at 10% simple interest for 10 years earns $1,000 per year for a total of $10,000 in interest. With compound interest (annual compounding), it grows to $25,937.42, earning $15,937.42 in interest. Our compound interest calculator shows this growth visually, while the simple interest calculator (available in the same tool) compares both side-by-side. This difference is crucial for understanding how savings calculator results can vary dramatically over long periods.