![]() ![]() Interest Rates in Savings and Investments If the return were calculated using simple interest instead, the total amount would be $62,500, or about 72% less than with compounding interest. The magic of compounding interest turned $25,000 into $108,048.56. ![]() The total interest accrued for the whole 30 years is a whopping $83,048.56. Total with compound interest at end of interval Let’s compare two scenarios with an initial principal of $1,000, both with a 5% interest rate that is calculated yearly, but one has simple interest while the other has compound interest.Ĭompound interest accrued during five-year period Therefore, if both simple and compound interests have the same rate, the interest generated will always be higher when compounding.īoth types of interest are calculated at certain periods which can be annually, semiannually, quarterly, monthly, daily, or any other period defined by the financial institution. Simple interest is the interest generated only from the principal. The difference? Compound interest includes the interest generated on the principal and the accumulated interest from any previous period. It can be found in amortized loans such as car loans, student loans, and mortgages, or short-term personal loans. Simple interest is, as its name implies, easier to understand. The Difference Between Simple Interest and Compound InterestĬompound interest can be found in savings accounts, certificates of deposit, investment instruments, loans, and credit cards. Hawaii Alaska Florida South Carolina Georgia Alabama North Carolina Tennessee RI Rhode Island CT Connecticut MA Massachusetts Maine NH New Hampshire VT Vermont New York NJ New Jersey DE Delaware MD Maryland West Virginia Ohio Michigan Arizona Nevada Utah Colorado New Mexico South Dakota Iowa Indiana Illinois Minnesota Wisconsin Missouri Louisiana Virginia DC Washington DC Idaho California North Dakota Washington Oregon Montana Wyoming Nebraska Kansas Oklahoma Pennsylvania Kentucky Mississippi Arkansas Texas GET STARTED ![]()
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