Distinguish, differentiate, compare and explain what is the main difference between Simple Interest and Compound Interest in maths.
Difference between Simple Interest and Compound Interest
1. Simple interest is calculated only on the original principal whereas the compound interest is calculated on the interest earned and the principal.
2. In Simple interest, the interest earned is reinvested. Therefore, it is not used in interest calculation for following periods. In the compound, the interest earned during the previous period is added to the principal. The total will become the new principal and all the money will earn interest.
3. Simple interest is normally used for short-term loans of 30 or 60 days. Compound interest is used for long term loans.