 TITLE: What Is Compound Interest? CONTENT: What Is the Difference Between Simple and Compound Interest?\n------------------------------------------------------------\nSimple interest and compound interest are earned in different ways. Simple interest is the base interest you earn or accrue on the principal amount you invest or borrow, and it does not compound. It's rarely used in investments and loans. Here's an example:\n*   Imagine you invest $100 and earn 5% interest on your investment in one year. The interest earned in this scenario would be $5. This $5 is an example of simple interest.\nCompound interest is the extra interest you earn on the simple interest that you've already earned. Here is a continuation of the example above:\n*   Once you add your simple interest ($5) to your principal ($100), you end up with $105. And then let's assume over the next year, you earn another 5% interest—but now it's on your $105, which would net you an extra $5.25 in that year. The extra interest earned ($.25) is the compound interest. END