Guide
Simple Interest vs Compound Interest
Compare the basic formulas and understand how compounding changes growth.
Key idea
Compare the basic formulas and understand how compounding changes growth.
Formula or method
Simple interest uses P(1+rt); compound interest uses P(1+r/n)^(nt).
Worked example
Start with the values in your question, substitute them into the formula, and keep the units consistent. For example, if a rate is given as 15%, use 0.15 when a formula requires a decimal.
Common mistakes
- Mixing percentage points with percentage change.
- Using different units for the same calculation.
- Rounding too early when several steps are involved.
Tip: Use the matching AvyTool calculator to check your result after working through the method.
Why the result can differ
Real-world calculations can include assumptions, rounding, fees, tax rules, calendar conventions, or other details. Treat simple calculator results as estimates when the underlying situation is more complex.