compound interest increases interest more than simple interest
With compound interest, after the first period you interest is calculated, not only on the original amount but also on the amount of interest from earlier periods. As to "better" or not, the answer depends on whether you are earning it on savings or paying it on borrowing!
With compound interest, in the second and subsequent periods, you are earning interest on the interest earned in previous periods. If you withdraw the interest earned at the end of every period, the two schemes will earn the same amount.
Simple interest is the interest you earn on your principal, IE the amount of your original investment. For example, you put 1000 dollars in a saving account paying 3% per annum. At the end of the year you will have earned 30 dollars on that one thousand dollars. If you leave the principal and interest in the account for another year you will earn another 30.00 on your original 1000 dollars plus .90 interest. on the first 30.00 dollars interest. This gives you a total of 1060.90 in your second year. In each succeeding year you will earn interest on your interest plus interest on your original principal which, if left alone will add up to a substantial some given the power of compound interest. One caveat, compound interest is a double edged sword. If you have a loan and fail to make your monthly payments on time, compound interest will gut you financially.
Draw a flow chart to calculate simple interest with 10% rate if time is greater than 2 yrs otherwise calculate simple interest with 5%.
compound interest increases interest more than simple interest
With compound interest, after the first period you interest is calculated, not only on the original amount but also on the amount of interest from earlier periods. As to "better" or not, the answer depends on whether you are earning it on savings or paying it on borrowing!
Compound interest gives you more, but at a low interest rate (less than 10%), the difference is negligible.
With compound interest, in the second and subsequent periods, you are earning interest on the interest earned in previous periods. If you withdraw the interest earned at the end of every period, the two schemes will earn the same amount.
Visit the lender and verify that this is actually happening. There is a difference between simple interest and compound interest based on the interest and the principle outstanding.
Bus-stop is a compound noun. Water is a compound made of oxygen and hydrogen
Simple interest is the interest you earn on your principal, IE the amount of your original investment. For example, you put 1000 dollars in a saving account paying 3% per annum. At the end of the year you will have earned 30 dollars on that one thousand dollars. If you leave the principal and interest in the account for another year you will earn another 30.00 on your original 1000 dollars plus .90 interest. on the first 30.00 dollars interest. This gives you a total of 1060.90 in your second year. In each succeeding year you will earn interest on your interest plus interest on your original principal which, if left alone will add up to a substantial some given the power of compound interest. One caveat, compound interest is a double edged sword. If you have a loan and fail to make your monthly payments on time, compound interest will gut you financially.
Imagine you have 2 different types of bonds:Compound:Let's say bond value is £100 and you get 4% quarterly interest on this investment.Your bond value after one quarter will be:Bond Value=£100Interest Earned: 4%=£4Total Value=£104After 2nd quarter, the bond value would be:Opening Value from quarter 1=£104Interest Earned: 4%=£4.16Total Value=££108.16After 3rd quarter, the bond value would be:Opening Value from quarter 1=£108.16Interest Earned: 4%=£4.33Total Value=££112.49After 4th quarter(or after a year), the bond value would be:Opening Value from quarter 1=£112.49Interest Earned: 4%=£4.50Total Value=££116.99SimpleBond Value=£100Interest Earned=16%(because it's 4% per quarter and there are 4 quarters in a year)=£16Total Bond Value=£116so bond value after a year is more under Compound than it is under Simple interest bond.The reason is because simple interest is calculated on one single figure while compound interest is calculated over the opening figure of month,quarter or year.So compound interest gives more interest income and hence it's better than simple interest bond.
Compound interest is better than simple (or "nominal") interest because compound interest allows you to add your accumulated interest back to your total every given term (i.e. each day, each week, each month, quarterly, annually, etc.), thus increasing the amount of money you are earning interest on.Example:Say you deposit 100 dollars for 2 years at 10% per year in 2 banks, one which does not compound your interest (Bank A), and one that compounds annually (Bank B).Bank A:After 1 year: 100 x 1.10 (1.10 = your amount + 10%) = 110After 2 years: 100 x 1.20 (1.20 = your amount +10% x 2) = 120Bank B:After 1 year: 100 x 1.10 = 110but then instead of using 100 again, you add the additional 10 back into your total and collect interest on 110 dollars in year two.So:After 2 years: 110 x 1.10 (1.10 = your amount + 10%) = 121
This sentence is a simple sentence.
Simple interest is calculated on the principal only. If you have $1,000 and earn 5% interest per year, you will receive $50 at the end of year one. At the end of year two, you will receive another $50. And on it goes. With compound interest, you earn interest on the principal plus any interest you previously earned. Looking again at the previous example, at the end of year one you will still receive $50. At the end of year two, however, you will receive $52.50. Why? Because the 5% is paid on the principal PLUS the interest you previously earned. At the end of 10 years, you'll receive $77.57. After 20 years, $126.35. With simple interest you would still receive only $50.
Two simple eyes. Compound eyes have more than one lens.