Simple vs compound interest, plainly
Simple interest pays only on the original amount: 100,000 at 10% earns 10,000 every year, forever. Compound interest pays interest on the interest too: the same deposit earns 10,000 the first year, then 11,000, then 12,100 — because each year's interest joins the principal. Over short periods the difference is pocket change; over decades it's the difference between saving and wealth. This calculator shows both side by side, year by year, so the effect stops being abstract.
How to use it
- Enter the principal, the yearly interest rate, and the time in years.
- Pick the compounding frequency — Nepali banks typically compound fixed deposits quarterly; many savings accounts compound monthly or daily.
- Press Calculate and compare: the "compounding bonus" stat is the extra money compounding earns over simple interest, and the table shows both balances growing year by year.
Reading the results
- More frequent compounding helps, but modestly — yearly vs quarterly matters far less than the rate and the time.
- Time is the superpower: at 8%, money roughly doubles every 9 years (the "Rule of 72" — divide 72 by the rate for the doubling time).
- Compounding works against you identically on debt — credit card balances grow by the same math that grows deposits.
- For loan repayments specifically, the EMI Calculator handles the monthly-instalment math. As with everything financial here: this is information for planning, not personal financial advice.
Frequently asked questions
What's the difference between simple and compound interest?
Simple interest pays only on the original principal every period. Compound interest adds each period's interest to the principal, so later interest is earned on earlier interest — small difference in year one, enormous difference by year twenty.
Which compounding frequency should I choose?
Match your product: fixed deposits in Nepal typically compound quarterly, many savings accounts monthly. If unsure, quarterly is a sensible default — frequency matters far less than the rate and the time.
What is the Rule of 72?
A quick mental shortcut: divide 72 by the interest rate to estimate the years for money to double under compounding. At 8%, roughly 9 years; at 12%, roughly 6. The calculator's yearly table shows the exact path.