You want to earn as much interest as possible on your savings but not pay more than you have to when you borrow. One of the biggest factors in both is whether you’re accruing simple or compound interest.
Simple Interest: Calculated annually on the amount you deposit or owe.
Compound Interest: Interest earned is added to the principal, forming a new base on which the next round of interest is calculated. This can accrue daily, monthly, or quarterly.
HOW IT WORKS
Enter the starting balance and use the sliders to adjust the monthly contribution, interest rate, and years. The graph will demonstrate the growth of the principal and interest earned/owned with simple interest vs compound interest.
Is Simple or Compound Interest Better?
If the rates and length of time are the same, compound interest will eventually be higher than simple. If you’re earning interest, that’s great! If you’re paying it, it’s not ideal.
How do I Know What Kind of Interest I Have?
If you aren’t sure what kind of interest your loan has, check your loan documents or contact your lender. Most credit cards will use compound interest while federally owned student loans and auto loans will use simple interest. Virtually all mortgage loans are amortized using a simple interest calculation.
While we hope you find this content useful, it is only intended to serve as a starting point. Your next step is to speak with a qualified, licensed professional who can provide advice tailored to your individual circumstances. Nothing in this article, nor in any associated resources, should be construed as financial or legal advice. Furthermore, while we have made good faith efforts to ensure that the information presented was correct as of the date the content was prepared, we are unable to guarantee that it remains accurate today.
Neither Banzai nor its sponsoring partners make any warranties or representations as to the accuracy, applicability, completeness, or suitability for any particular purpose of the information contained herein. Banzai and its sponsoring partners expressly disclaim any liability arising from the use or misuse of these materials and, by visiting this site, you agree to release Banzai and its sponsoring partners from any such liability. Do not rely upon the information provided in this content when making decisions regarding financial or legal matters without first consulting with a qualified, licensed professional.