But not all interest rates are the same. In the world of finance, you’ll run into two types of interest: simple and compounding. Here’s a helpful overview of simple interest vs. compound interest.

$5,000 x 0.05 = $250 Simple interest accrues on the money deposited. So, you’ll earn interest only on the money you deposit in the savings account, not on the $250 that you earn in interest. You ...

He who doesn’t, pays it.” We explain the difference between simple and compound interest so you have the best chance of making money as a saver or investor, or reducing the cost of any borrowing.

If the same account offered compound interest with daily compounding, you’d have $14,917.92 after 10 years. Note that credit unions usually refer to both simple and compound interest as dividends.

For example, say you deposit $1,000 in an account with a 4% interest rate. If interest is calculated monthly, you'll earn $40 interest the first month the account is open, bringing your balance to ...

The Power of Compound Interest: How to Turn Small Investments Into Big Wealth The key is understanding how it works and how to maximize its potential to build financial security.

While simple interest grows linearly, compound interest accelerates over time. A $1,000 investment at 5% annual compound interest grows to $1,628.89 in 10 years, compared to just $1,500 with ...

The key difference between APY and interest rate is compound interest. APY includes interest that’s earned on the original balance as well as the amount of compound interest earned in one year.

Simple vs. Compound Interest If you invested $10,000 at 5% simple interest for 10 years, you would receive $500 in interest every year, for a total of $5,000 in earned interest at the end of year 10.