Simple Interest vs Compound Interest Explained | Interest Calculation Formula and Example

Welcome to Manager EDU. In this video, we explain interest and how to calculate it. Interest is the cost of borrowing money or the reward for saving or lending money. We cover two main types of interest calculation: simple interest and compound interest. You will learn the formulas, see practical examples, and understand the difference between linear and exponential growth. In this video, you will learn: What interest is and why it matters. Simple interest definition and formula: Principal Amount multiplied by (1 plus rate times time) Compound interest definition and formula: Principal Amount multiplied by (1 plus rate divided by n) raised to the power of (n times time) The difference between yearly, semi-yearly, quarterly, monthly, daily, and continuous compounding. A step-by-step example with a principal of twelve thousand dollars, eight percent annual interest rate, over six years. How to calculate compound interest quarterly (final amount: nineteen thousand three hundred one dollars and twenty-eight cents). A challenge for viewers: calculate the same data using monthly compounding and post your answer in the comments. Example Used (Simple Interest): Principal: twelve thousand dollars Rate: eight percent per year Time: six years Simple Interest Amount: seventeen thousand seven hundred sixty dollars Example Used (Compound Interest Quarterly): Principal: twelve thousand dollars Rate: eight percent per year Time: six years Compounding periods per year (n): four Compound Interest Amount: nineteen thousand three hundred one dollars and twenty-eight cents Key Takeaway: Simple interest applies only to the principal amount and grows linearly. Compound interest applies to the principal plus accumulated interest and grows exponentially, making it more powerful for long-term saving and investing. Connect with us: Facebook: https://www.facebook.com/TheManagerEDU/ TikTok: https://www.tiktok.com/@manager.edu/ WhatsApp Channel: https://whatsapp.com/channel/

Added 2 Jun 2026