Simple interest applies the rate only to principal. Compound interest applies the rate to a growing balance when interest is added and itself earns interest later.
Formulas (educational)
- Simple:
I = P × r × t,A = P + I - Monthly compound (common teaching form):
A = P(1 + r/12)^(12·t)
Same sample, two models
$10,000.00 at 5% for 3 years:
- Simple interest ≈ $1,500.00 (total ≈ $11,500.00) — open simple calculator
- Monthly compound interest ≈ $1,614.72 (total ≈ $11,614.72) — open compound calculator
Why the gap grows with time
Under compounding, each period’s balance includes prior interest, so later periods can add more dollars of interest at the same nominal rate. Simple interest stays linear in time.
Related
Frequently asked questions
Which is higher for the same rate and time?
When rates and time are positive, compound interest is usually higher because interest earns interest. Sample $10k · 5% · 3y: simple ≈ $1,500.00; monthly compound ≈ $1,614.72.
Does Nestfigure recommend one product?
No. These are educational models only—not product recommendations or quotes.
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Simple I = P × r × t vs compound growth models.
Open simple interest calculatorSources linked above include U.S. government materials (for example CFPB, FDIC, NCUA, BLS, IRS) where noted. Sample math uses only labeled Nestfigure assumptions—not bank quotes, job offers, or personalized advice. Last reviewed: August 9, 2026.