The main difference between simple interest and compound interest is how interest is calculated and the results generated. To put it simply, compound interest needs to calculate the interest of the previous cycle again in the new cycle, which is commonly known as rolling interest. Simple interest is no longer calculated in the new cycle.
Simple interest is a simple method of calculating interest, which is calculated based only on the principal amount and does not take into account the reinvestment of interest. In simple interest, interest is calculated only on the initial principal amount and is paid to the investor at the end of the interest-bearing period. Therefore, the amount of interest on simple interest is fixed and does not increase over time.
For example, the bank's fixed deposit is calculated as 10,000 yuan, three-year term, and an annual interest rate of 3%: 10,000 3% 3=900 yuan interest.
Compound interest is a more complex method of calculating interest, which takes into account the reinvestment of interest. In compound interest, the interest is reinvested at the end of each interest-bearing period, and the interest for the next interest-bearing period is calculated along with the principal. This means that interest accrues exponentially over time, resulting in a higher return on investment.
For example, a certain wealth management is based on a monthly cycle, with an investment of 10,000 yuan, a 12-month cycle, and a monthly interest rate of 03% is calculated as: 10000 (1+0.).3%) 12=10,366 yuan. That is, the investment income is 366 yuan.
Generally speaking, deposits are simple interest, while investment and wealth management, **, etc. are compound interest calculations.
Overall, the main difference between simple interest and compound interest is whether or not the reinvestment of interest is considered.
The interest on simple interest is fixed and does not increase over time; Compound interest, on the other hand, increases exponentially over time, so it typically yields higher returns.