What are simple interest and compound interest?
Here is an easy way to understand it rather than ust giving you definitions: Suppose you have $100 in a savings account earning 3% interest. If the account pays simple interest and you don’t add or subtract any money, you’ll earn 3% on your deposit each year, or $3. After 25 years, you’ll have a balance of $175 ($100 + (25 x $3) = $175). But with compound interest your account will grow faster, because your interest starts earning interest, too. You would earn $3 the first year. But then, the second year you would earn $3.09, or 3% of your $103 balance. And after 25 years of compound interest, you’d have a $209 balance!
