### Simple Interest vs. Compound Interest

**Simple interest** is the interest earned only on the principal balance. For instance, if you deposit $100 in an account that earns simple interest annually at a rate of 10 percent, you will earn $10 per year, every year.

**Compound interest** is the interest you earn on the interest that accrues over time. For instance, if you deposit $100 in an account that earns compound interest annually at a rate of 10 percent, you will earn $10 the first year, then $11, then $12.10, then $13.31 then next year, and so on. This is called exponential growth, and your money will grow at a faster and faster rate each year as long as you keep your money in the account.

### Here is a video to break down the difference:

Have a great day!

**Mallory **