Simple vs Compound Interest: What's the Difference?
Simple interest is paid only on the principal: on 800 dollars at 6 percent, you get 48 dollars every single year.
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1.What is simple interest paid on?
Simple interest is paid only on the principal: on 800 dollars at 6 percent, you get 48 dollars every single year.
2.What does compound interest add to the balance each year?
Next year the rate applies to that bigger balance, so you earn interest on interest; the rate is exactly the same.
3.Marge and Leo each have 800 dollars at 6 percent. After two years, what do Marge (simple) and Leo (compound) have?
In year two Leo earns 6 percent on 848, not on 800; the extra 2 dollars 88 is 6 percent of the first 48 dollars of interest.
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Sources (8)
- How does compound interest work? (Ask CFPB) (Consumer Financial Protection Bureau)
- How Does Compound Interest Work? (Open Vault, 2018) (Federal Reserve Bank of St. Louis)
- I Bonds (Regeln zu Verzinsung
- Eigene Rechnung: 1.000 zu 5 Prozent jaehrlich, einfacher Zins gegen Zinseszins nach 5, 10
- What's the difference between a simple interest rate and precomputed interest on an auto loan? (Ask CFPB, Consumer Financial Protection Bureau)
- What is a credit card APR? (Ask CFPB, Consumer Financial Protection Bureau)
- Contemporary Mathematics, 6.3 Simple Interest (OpenStax, Donna Kirk)
- Eigene Berechnung: einfacher gegen zusammengesetzten Zins, 800 bei 6 %
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