Finance
Simple vs Compound Interest: A Side-by-Side
Morecalcs Team 2026-08-09· 6 min
When lenders quote simple interest, and why compound almost always wins.
Simple interest
I = P × r × t. Interest is computed only on the original principal. Used for some auto loans and short-term consumer credit.
Compound interest
FV = P × (1 + r/n)^(nt). Interest earns interest. Used for savings, investments, and mortgages.
The 30-year gap
$10,000 at 5% for 30 years: $25,000 simple vs $43,219 compound. Same rate, same time. The gap is exponential.
Where it matters most
Retirement accounts. Every dollar you contribute at 25 is worth 5× a dollar contributed at 55.
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