Simple Interest vs Compound Interest: Clear Examples (2025 Guide)
Interest can grow your money — but depending on the method, the results can be very different. This guide explains simple interest vs compound interest with real USD examples so you can instantly see the difference.
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Use the free compound interest calculator to compare both interest types instantly.
Open compound interest calculator →Simple Interest: The Basics
Simple interest grows in a straight line. You earn interest only on the original principal.
Simple Interest Formula
Interest = Principal × Rate × Time
Example: $10,000 at 5% for 5 years
- Interest each year: $500
- Total interest after 5 years: $2,500
- Final value: $12,500
No acceleration — earnings stay the same every year.
Compound Interest: The Basics
Compound interest grows your money exponentially.
You earn interest on the principal and on the interest you already earned.
Compound Interest Formula
A = P (1 + r/n)(n·t)
Example: $10,000 at 5% for 5 years, compounded annually
- Year 1: $10,500
- Year 2: $11,025
- Year 3: $11,576
- Year 4: $12,155
- Year 5: $12,763
Total interest earned: $2,763
(That’s $263 more than simple interest — with the same rate and time.)
Simple vs Compound Interest: Side-by-Side Comparison
| Feature | Simple Interest | Compound Interest |
|---|---|---|
| Interest earned on past interest? | No | Yes |
| Growth pattern | Linear | Exponential |
| Best for | Short-term loans | Savings & long-term investing |
| Typical total returns | Lower | Higher |
Which One Helps Your Money Grow More?
If you're comparing growth over several years, compound interest almost always wins. The longer the time period, the bigger the gap becomes — often dramatically.
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Test different rates, time periods and contributions in seconds.
Try the compound interest calculator →Key Takeaways
- Simple interest grows at a fixed rate — no compounding.
- Compound interest grows faster because interest earns more interest.
- Even small differences in rates or years can lead to large differences in outcomes.
- For savings and investing, compound interest is typically far more powerful.
Next steps
👉 Compare compound growth using the
compound interest calculator
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