Aug 1, 2026
Interest is the cost of borrowing money, or the reward for saving it. How that interest is calculated — simple or compound — makes a bigger difference than most people expect.
Simple interest is calculated only on the original principal, every period, for the entire duration:
SI = P × R × T / 100
₹1,00,000 at 8% for 5 years earns SI = 1,00,000 × 8 × 5 / 100 = ₹40,000 in interest, no matter how the money is structured.
Compound interest is calculated on the principal plus any interest already earned, so each period's interest is a little bigger than the last:
Amount = P × (1 + r/n)n×t
The same ₹1,00,000 at 8% for 5 years, compounded annually, grows to about ₹1,46,933 — meaning ₹46,933 in interest, ₹6,933 more than simple interest, purely from compounding.
The longer the time horizon, the bigger the gap between simple and compound interest becomes, because each year's interest starts earning interest of its own. This is exactly why starting to invest early matters so much for long-term goals like retirement — time does a large part of the work.
Curious how your own numbers play out? Compare simple and compound interest side by side using our interest calculator below.
Ready to try it yourself?
Open Interest Calculator