In short, with simple interest, you only earn interest on the initial amount you invested, whereas compound interest is “interest earned on interest” and it is calculated on the principal amount as well as the previous period’s interest.
Compound interest has the potential to earn more returns than simple interest. An investment grows exponentially with compound interest because it is based on the principal power of compounding. Compound interest is most commonly used in investments where there is a reinvestment of profits.
