## Simple interest *vs* compound interest

In simple interest, only principle makes money(earns interest), whether your investment lasts one year or ten years.

In compound interest, not only principle earns interest, but also interest earned in previous period will earn interest in the following periods. Compound interest is used more popularly in our real life, like credit card, saving and checking account, and mortgage loan.

For example, $10,000 at 8% annual interest rate, compounded annually for 10 years. Calculate its simple interest and compound interest.

Year |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |

Annual simple interest |
$800 |
$800 |
$800 |
$800 |
$800 |
$800 |
$800 |
$800 |
$800 |
$800 |

Annual compound interest |
$800 |
$864 |
$933.12 |
$1,007.77 |
$1,088.39 |
$1,175.46 |
$1,269.50 |
$1,371.06 |
$1,480.75 |
$1,599.20 |

Year |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |

Total simple interest |
$800 |
$1,600 |
$2,400 |
$3,200 |
$4,000 |
$4,800 |
$5,600 |
$6,400 |
$7,200 |
$8,000 |

Total compound interest |
$800 |
$1,664 |
$2,597.12 |
$3,604.89 |
$4,693.28 |
$5,868.74 |
$7,138.24 |
$8,509.30 |
$9,990.05 |
$11,589.25 |