# Difference Between Simple Interest and Compound Interest

## What is Simple Interest?

Simple interest is the amount that increases your amount of income in case you are the investor. it is the sum of money that you earned over the last year on your principle amount. we can understand it with the help of an example like if you give a loan amount of \$1,000 per five-year CD at 4%,  your simple interest calculation would produce \$200.

## What is compound interest?

Compound interest is another type of interest that also use to increase the wealth of an investor. there is bit different in this loan as compared to simple interest. in the compound, interest lenders give loans and charge compound interest not only on the principal amount but also on the interest earned over the period of time.

## What is the Difference Between Simple Interest and Compound Interest

#### Example ## Simple Interest vs. Compound Interest

if your are want to compare or make to differentiate simple interest vs compound interest, it is very easy to calculate. Simple interest is the number of interest that one applies only on principle amount. while on the other hand compound interest the sum of amount that applies the same on the principal amount but further on the amount of interest that you have earned ove the period of time. both interests are different from each other but use to increase in wealth.

if you are investor than compound interest will be the recommended option for your because it is the sources of income that grow your fund more fastly as compared to simple interest. compound interest usually used for annually compounding of interest or get the annual percentage income.

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