Simple & Compound Interest
Interest is the price you pay for using someone else's money. When you borrow money from a bank, you pay interest. When you keep money in a savings account, the bank pays you interest. Simple Interest (SI) is the most basic type. It is calculated only on the original amount of money you borrowed or invested. This original amount is called the Principal. For example, if you borrow ₹10,000 at 10% Simple Interest for 3 years, you pay ₹1,000 interest every year. The interest amount does not change.
Concepts (3)
This concept compares the extra money earned through compounding versus simple growth. It is a favorite topic for competitive exams. For 1 year, the difference is zero. For 2 years, the difference depends on the interest of the first year's interest.
This concept compares the extra money earned through compounding versus simple growth. It is a favorite topic for competitive exams. For 1 year, the difference is zero. For 2 years, the difference depends on the interest of the first year's interest.
Simple Interest is calculated only on the initial principal amount. It is used for basic loans. The interest does not earn any further interest. If you invest ₹500 at 5% SI for 2 years, you get ₹25 each year. Total interest is ₹50.
Simple Interest is calculated only on the initial principal amount. It is used for basic loans. The interest does not earn any further interest. If you invest ₹500 at 5% SI for 2 years, you get ₹25 each year. Total interest is ₹50.
Compound Interest includes interest on the accumulated interest of previous periods. It grows exponentially. If you invest ₹500 at 10% CI for 2 years, you get ₹50 in year one and ₹55 in year two. Total interest is ₹105.
Compound Interest includes interest on the accumulated interest of previous periods. It grows exponentially. If you invest ₹500 at 10% CI for 2 years, you get ₹50 in year one and ₹55 in year two. Total interest is ₹105.
Ready to practice? Start an interactive lesson.
Start Lesson: Difference between SI and CI