Elvis Picardo is a regular contributor to Investopedia and has 25+ years of experience as a portfolio manager with diverse capital markets experience. Suzanne is a content marketer, writer, and ...

Simple interest is paid only on the principal, e.g., a $10,000 investment at 5% yields $500 annually. Compound interest accumulates on both principal and past interest, increasing total returns over ...

Simple interest is used when a company borrows money for a loan. Usually this amount will be on a monthly basis. The formula for simple interest is principal times the interest rate times the period.