Compound Interest versus Simple Interest

by Mike Murkins, CFP®, Financial Planner | September 11, 2023

Show Notes: 

There are two primary ways to compute interest: compound or simple.

Financial Planner Mike Murkins provides examples of the difference between simple and compound interest on today's Finance Moment Podcast and how you can make compound interest work for you as part of your investment strategy.

Compound Interest

Compound interest, as defined by Merriam-Webster's dictionary, is the interest computed on the sum of an original principal and accrued interest.

Simple Interest

Simple interest is defined as interest paid or computed on the original principal only of a loan or on the amount of an account.

To learn more about the difference between compound interest and simple interest and how Warren Buffett made compound interest work to his benefit, listen to the whole podcast episode!

Finance Moment…Syverson Strege’s mini-podcasts to provide rapid-fire information on financial topics of the day.

DISCLAIMER: Past performance is not indicative of future results. This assumes a hypothetical interest rate of 10% for simplicity of comparing the difference in computing returns. The actual rate of return on an investment is largely dependent on the types of investments you select. It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment.