Simple vs. Compound Interest
Simple interest is calculated on the original principal. Compound interest is calculated on principal plus previously added interest, so the base can grow over time.
Simple interest
With simple interest, the interest amount for each equal period is based on the same original principal, assuming the rate and principal do not change.
Compound interest
With compounding, previously credited interest can itself earn interest. The effect is modest over short periods and can become significant over long periods.
Borrowing also compounds
Compounding is not automatically beneficial. On debt, unpaid interest can increase future interest costs. Always read how a loan or credit product calculates and capitalizes interest.
A practical next step
Write down the one number or fact from this topic that affects your situation—such as a balance, rate, due date, fee, target amount or policy limit. Then verify any jurisdiction-specific rule with an official source before making a decision.