Simple interest is calculated only on the original principal. Compound interest is calculated on principal plus accumulated interest — interest earns interest.
Simple interest formula
SI = P × R × T / 100 (P = principal, R = annual rate %, T = time in years)
Compound interest formula
A = P × (1 + R/100)n where n is number of compounding periods.
Example: ₹1 lakh at 8% for 3 years
- Simple interest: ₹24,000 → Total ₹1,24,000
- Compound (annual): approx. ₹25,971 interest → Total ₹1,25,971
Over long periods, compounding creates a much larger gap — that is why SIP and PPF wealth grows faster than plain SI accounts.
Where each applies
- Simple — some short-term loans, quick estimates
- Compound — bank FDs, mutual funds, PPF, credit card debt if unpaid
Compare both with Master Calc CI and SI calculators.
Disclaimer: Rates vary. Use for planning only.