Top4 Difference between Simple interest (si) and compound interest (ci)

Top 4 Difference between Simple interest (si) and compound interest (ci) | Simple interest and compound interest formula

Top 4 difference between simple interest ( si ) and compound interest ( ci ) is that the simple interest is compounded by the principal amount, while the compound interest is based on the principal amount and the compound interest is for the period cycle.

We know that simple interest and compound interest are two important concepts that are widely used in banking purposes in many financial services. Loans such as installment loans, auto loans, educational loans, mortgages use simple interest. 
             
Compound interest is used by most savings accounts because it pays interest. It pays more than simple interest. In this article, we discuss the difference between simple interest and compound interest.

Definition of simple and compound interest

Simple Interest: Simple interest can be defined as the principal amount of a loan or deposit a person makes in their bank account.

The formula of simple interest is:

Simple interest = Principal amount (P) x Rate of interest (I) x Loan or deposit (N) in years

Compound Interest: Compound interest is simply the interest that accumulates and accumulates more than the principal amount.

Similarly, it is also possible to calculate the formula for compound interest, the formula for compound interest can be calculated as follows:

Compound Interest = the total amount of the principal in the present and less the principal in the future.

See here:

So first question of every student to find the What is the difference between simple and compound interest? and this question post are very useful to know that difference between si and ci

Below you can find the main differences between simple interest and compound interest in following basis:

Difference between si and ci or simple Interest and Compound interest

1. Defination
2. Principle Amount
3. Formula
4. Return amount

So let's start,

1. Defination of simple interest and compound interest: 

A.simple interest is defined as A Interest is the amount paid by someone who borrows a certain amount of money.

Or

Define  Simple Interest: Simple interest can be defined as the principal amount of a loan or deposit a person makes in their bank account.

 

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Compound interest defined is simply the interest that accumulates and accumulates more than the principal amount.
Or in simple language is 
Compound interest is the excess of the principal amount of a loan or deposit, or in other words, interest on interest. This is the result of repurchase interest, rather than repaying it, so that in the next period the interest is then earned on the interest already accumulated before the principal amount.

• 2.Principle Amount

In Simple interest ,the principal amount is fixed , where interest rate are paid by borrower.
In Compound interest ,the principal amount is varry by periods .

• 3.Formula of simple interest and compound interest difference below,

Simple Interest formula,

 Simple interest = Principal amount (P) x Rate of interest (R) x Loan or deposit (T) in years

S.I.= ( P*R*T ) ÷100

Compound interest formula as below,

 C.I. = P(1+R⁄100)^t − P

Nomenclature of C.I. = Compound interest,
                              P= Principal amount 
                             R= rate of interest
                            T= time period in month or days or years

• 4.Return amount on simple interest vs compound interest

As in simple interest the return amount is fixed.
 But
In Compound interest the return amount much more than simple interest.

 

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Simple example on simple interest and compound interest as below ,

A sum of money at simple interest amounts to Rs. 500 in 3 years and to Rs. 600 in 4 years. The sum is:

A.	Rs. 350
B.	Rs. 290
C.	Rs. 300
D.	Rs. 310

Answer: Option C
Explanation:

S.I. for 1 year = Rs. (600 - 500) = Rs. 100
S.I. for 3 years = Rs.(100 x 3) = Rs. 300.
Principal = Rs. (600 - 300) = Rs. 300.

 

 

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