Simple Interest and Compound Interest 

Simple Interest and Compound Interest are the most important concepts of Mathematics and Basic Quants. In bank and railway exams most of the questions are asked from simple and compound interest. There is not much difference between Simple Interest and Compound Interest. In which a borrower pays the cost of borrowed money to the lender in the form of loans is known as interest.  The definition of simple Interest can be payment or receiving of the principal amount of loan or deposit a person makes in their bank account. The compound interest is that interest that is added to the principal amount. In simple words, it can be said that compound interest has more ability to yield more returns than simple Interest on any kind of investment. Basically, simple Interest is an amount that is paid to the borrower for using the borrowed money in a fixed period of time. 

Simple Interest and Compound Interest 

Simple Interest and Compound Interest are the most important concepts of Mathematics and Basic Quants. In bank and railway exams most of the questions are asked from simple and compound interest. There is not much difference between Simple Interest and Compound Interest. In which a borrower pays the cost of borrowed money to the lender in the form of loans is known as interest.  The definition of simple Interest can be said to be payment or receiving of the principal amount of loan or deposit a person makes in their bank account. 

The compound interest is that interest that is added to the principal amount. In simple words, it can be said that compound interest has more ability to yield more returns than simple Interest on any kind of investment. Basically, simple Interest is an amount that is paid to the borrower for using the borrowed money in a fixed period of time. Anyone can easily calculate simple Interest just by multiplying the interest amount by tenure and principal amount. Car loans or Consumer loads generally take the help of simple Interest while calculating the interest payments. There are specific formulas for calculating simple Interest and Compound Interest. 

Simple and Compound Interest Formula 

 Anyone can easily calculate simple Interest just by multiplying the interest amount by tenure and principal amount. The tenure may consist of days, months, or years. Therefore, the Interest rate has to be converted accordingly before multiplication with tenure and principal amount. 

Simple Interest Formula 

SI = P×I×N 

Here, P – Principal Amount

I – Interest Rate for the specific period 

N – Tenure 

Unlike simple Interest which earns interest only in the principal amount, compound interest earns interest in the previously earned Interest amount too. In simple words, compound interest is an Interest on interest. Well, calculating simple Interest was very easy. However, calculating compound interest can be a bit tricky because this consists of the number of compounding periods annually. Compound Interest can be calculated by multiplying one plus Interest rate boosted to the power of the compounding period with the principal amount. 

Compound Interest Formula 

A=P(1+r/n) ^(n×t)-1) 

Here, A means Compound Interest

P – Principal Amount

R – a rate of interest 

N – no of compounding periods

T – duration 

Difference between Simple Interest and Compound Interest 

The point of difference between Simple Interest and Compound Interest are as follows: – 

Conclusion 

The definition of simple Interest can be said to be payment or receiving of the principal amount of loan or deposit a person makes in their bank account. The compound interest is that interest that is added to the principal amount. In simple words, it can be said that compound interest has more ability to yield more returns than simple Interest on any kind of investment.  Unlike simple Interest which earns interest only in the principal amount, compound interest earns interest in the previously earned Interest amount too.