But the percentage paid can be radically different in real dollar terms depending on whether it is calculated as simple interest or compound interest: Simple interest is the percentage of a loan ...

Simple interest is more favorable for borrowers due to its non-compounding nature. Compound interest benefits investors by allowing earnings to also generate returns. Invest in avenues like stocks ...

Note that the example above is exactly the same as the example for simple interest, but the answers are different as compound interest changes the amount each period.

Simple interest is often used in a loan or bond context wherein the interest is the same every period, and there is no compounding. Compound interest is used in investment and savings contexts.

Below, CNBC Select breaks down the difference between simple and compound interest, how the latter works and ways you can benefit from understanding compound interest. Simple interest is ...