Compare simple and compound interest
Jack saves money using a home-deposit account. Two interest plans are being compared
The principal is $2,500, the annual rate is 6% p.a. and the term is 2 years
Plan A uses compound interest, compounded annually. Plan B uses simple interest
The compound plan has one compounding period per year
These fictional plans have fixed rates, no fees and no deposits, withdrawals or repayments during the term. Any debt is repaid at the end. For the compound plan the quoted annual rate is nominal. Keep full calculator precision until the final answer
In the formulas, R is the annual percentage number, r = R/k is the percentage number per compounding period, k is periods per year and n = kt
\[I_s = \frac{P \times R \times t}{100}\]
\[A = P(1 + r/100)^n\]