Simple interest is always greater than compound interest
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What Is Simple Interest?
The term interest indicates how much you can earn from the money you originally invest. As your investment sits in an account over time, interest accumulates and you can watch your funds grow.
To calculate the amount of simple interest you stand to earn as an investor, you can use the following formula: Principal Balance x Interest Rate. You can then multiply the product by the number of years you’re investing your money to find out what your return rate would look like over time.
For example, if you decide to invest $2,000 in a money market account with a simple interest rate of 8.5%, you’ll earn $170 in interest after one year ($2,000 x 0.085). After five years, you’ll earn $850 (170 x 5) in interest.
Compound Interest: The Basics

Compound interest represents the amount you earn from your initial investment in addition to the interest you earn – on top of the interest that has already accrued. You can calculate compound interest using the formula, A=P(1+r/n)nt. A is the amount you have after compounding. The value P is the principal balance. The value r is the interest rate (expressed as a decimal), n is the number of times that interest compounds per year and t is the number of years.
Interest can compound either frequently (daily or monthly) or infrequently (quarterly, once a year or biannually). The more often your interest compounds, the more interest you’ll earn on your investment.
It’s easy to see that money grows more quickly when it’s earning compound interest than when it’s earning simple interest. To return to the example above, if you invest $2,000 at an interest rate of 8.5% compounding twice a year for 5 years, your end balance will be $3,032.43. You will have earned $1,032.43 in interest, compared to $850 in the simple interest example
The term interest indicates how much you can earn from the money you originally invest. As your investment sits in an account over time, interest accumulates and you can watch your funds grow.
To calculate the amount of simple interest you stand to earn as an investor, you can use the following formula: Principal Balance x Interest Rate. You can then multiply the product by the number of years you’re investing your money to find out what your return rate would look like over time.
For example, if you decide to invest $2,000 in a money market account with a simple interest rate of 8.5%, you’ll earn $170 in interest after one year ($2,000 x 0.085). After five years, you’ll earn $850 (170 x 5) in interest.
Compound Interest: The Basics

Compound interest represents the amount you earn from your initial investment in addition to the interest you earn – on top of the interest that has already accrued. You can calculate compound interest using the formula, A=P(1+r/n)nt. A is the amount you have after compounding. The value P is the principal balance. The value r is the interest rate (expressed as a decimal), n is the number of times that interest compounds per year and t is the number of years.
Interest can compound either frequently (daily or monthly) or infrequently (quarterly, once a year or biannually). The more often your interest compounds, the more interest you’ll earn on your investment.
It’s easy to see that money grows more quickly when it’s earning compound interest than when it’s earning simple interest. To return to the example above, if you invest $2,000 at an interest rate of 8.5% compounding twice a year for 5 years, your end balance will be $3,032.43. You will have earned $1,032.43 in interest, compared to $850 in the simple interest example
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