How does simple interest differ from compound interest?

Simple interest rates are between 1-5% while compound interest rates are over 5%.

You earn simple interest in a savings account and compound interest on an investment.

Simple interest is calculated on principal alone; compound interest is calculated on the principal as well as the interest you’ve already earned.

Simple interest is calculated on the principal as well as the interest you’ve already earned; compound interest is calculated on principal alone.

The correct answer is letter "C": Simple interest is calculated on principal alone; compound interest is calculated on the principal as well as the interest you’ve already earned.

Explanation:

Interest may be simple or compounded. In general, simple interest is expressed as a percentage of the principal amount of a loan. It is calculated by multiplying a loan's principal amount by the interest rate and the number of payment periods. Compounded interest accrues on the principal amount of a loan and the interest accrued from previous periods. To calculate it multiply the principal by the interest rate plus one (1), raised to the number of compound periods minus one (1).

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