Simple interest is calculated only on your original principal. Compound interest is calculated on the principal plus all the interest already earned — so it grows faster over time. Here is the gap on ₹1,00,000 at 8% over 10 years.
Scenario: ₹1,00,000 at 8% per year for 10 years — simple interest versus interest compounded annually.
Side-by-side comparison
| Metric | Simple interest | Compound interest |
|---|---|---|
| Principal | ₹1,00,000 | ₹1,00,000 |
| Total interest | ₹80,000 | ₹1,15,892 |
Simple interest vs Compound interest at a glance
| Simple interest | Compound interest | |
|---|---|---|
| Interest is charged on | Principal only | Principal + interest already earned |
| Growth over time | Straight line | Accelerating curve |
| Where you see it | Some short-term loans, fixed payouts | Savings, mutual funds, most loans |
| Effect of time | Steady | Bigger the longer you wait |
The verdict
Over short periods the two are close, but the longer the money stays invested, the more compound interest pulls ahead — that is the power of compounding. When you are investing, you want compound interest working for you; when you are borrowing, it works against you, so clear those debts faster.
Model your own numbers with the Simple Interest Calculator and the Compound Interest Calculator.