Key point: This guide explains financial concepts and calculator logic. It does not tell you that one investment, loan, or retirement choice is right for you.
The formula-level difference
With a principal of 100,000 and a 5% annual assumption, simple interest adds 5,000 each year. Compounding starts the next period from a larger base.
Time matters more than the first-year gap
The difference may look small at first, but it can widen over long horizons.
Returns are not guaranteed
Investment returns are not fixed. Test conservative, base, and optimistic assumptions.
When each concept is useful
Some deposits and loans use specific interest conventions, while investment projections often use compounding. Always follow the actual contract for real products.
How can you use this in practice?
Put the concept into a calculator and compare at least two or three scenarios. Focus on which assumptions drive the result.
General financial education only. Not individualized investment, lending, tax, legal, or professional advice.