Simple vs Compound Interest

Simple vs Compound Interest

Abdulla Javeri

30 years: Financial markets trader

Compounding is one of the most powerful concepts in finance. Abdulla compares simple versus compound interest and the importance of understanding the difference.

Compounding is one of the most powerful concepts in finance. Abdulla compares simple versus compound interest and the importance of understanding the difference.

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Simple vs Compound Interest

5 mins 28 secs

Overview

With simple interest, a depositor receiving annual interest from a deposit removes the interest and just reinvests the principal and earns the annual interest rate. With compound interest, the depositor reinvests the principal and interest every year i.e. the interest earns interest so the amount of interest received goes up each year.

Key learning objectives:

  • Apply the simple vs compound interest rate scenario to an investment

  • Learn how simple and compound interest differ

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Summary
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Expert
Abdulla Javeri

Abdulla Javeri

Abdulla’s career in the financial markets started in 1990 when he entered the trading floor of the London International Financial Futures Exchange, LIFFE, and qualified as a pit trader in equity and equity index options. In 1996, Abdulla became a trainer for regulatory qualifications and then for non-exam courses, primarily covering all major financial products.

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