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  • PD 2 Money Credit and Other Adulting Stuff

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    Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest over time. For example, with simple interest a $100 deposit earning 5% annual interest would yield $5 per year, while with compound interest the same deposit would earn $5 the first year but $5.25 the second year due to interest being earned on the $105 balance. Compound interest produces higher returns for longer-term and larger investments.

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    Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest over time. For example, with simple interest a $100 deposit earning 5% annual interest would yield $5 per year, while with compound interest the same deposit would earn $5 the first year but $5.25 the second year due to interest being earned on the $105 balance. Compound interest produces higher returns for longer-term and larger investments.

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    10 views2 pages

    PD 2 Money Credit and Other Adulting Stuff

    Uploaded by

    api-524255697
    Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest over time. For example, with simple interest a $100 deposit earning 5% annual interest would yield $5 per year, while with compound interest the same deposit would earn $5 the first year but $5.25 the second year due to interest being earned on the $105 balance. Compound interest produces higher returns for longer-term and larger investments.

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    of 2

    Simple VS.

    Compound Interest

    Simple Interest: Compound Interest:


    -This is the interest earned on general accounts -This is the interest earned on interest accounts
    -Simple interest is based on the original -Compound interest is the interest based on
    amount of the loan or payment cumulative interest on established accounts
    -Simple interest is the interest on loans and -Compound interest is the interest on interest
    deposits Example:
    Example: (From Interest Sheet)
    (From Interest Sheet) Say I deposit $100 into a savings account with
    Say I deposit $100 into a savings account with compound interest, after one year I’ll earn $5 in
    simple interest, after one year I’ll earn $5 in interest.
    interest. The next year, I would earn interest on the $105.
    The next year, I would also earn $5 in interest With compound interest I would earn $5.25.
    unless more money is deposited. (.05 *105=5.25)
    (.05 *100=5)
    Simple VS. Compound Interest

    Simple Interest: Sources:


    -Interest on principal only https://www.investopedia.com/articles/inve
    -Better for short term and small investments sting/020614/learn-simple-and-compound
    -interest.asp#:~:text=Simple%20interest%2
    Compound Interest:
    0is%20calculated%20on,as%20%E2%80%9
    -Interest on principal and on interest
    Cinterest%20on%20interest.%E2%80%9D
    previously earned
    *The interest sheet given to me in class*
    -Better for longer and larger investments

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