Over time, this can mean some pretty heavy losses. The principles of simple and compound interest are the same whether you're calculating your earnings from a savings account or the fees you've accumulated on a credit card. Paying a little attention to these principles could mean big payoffs over time. Understanding the basics When you put money in a savings account, the bank pays you interest according to what you deposit. In banking, interest is calculated and added at the end of a certain time period.
Simple interest is figured once.
Compound interest is a little different. With compound interest, the money you earn in interest becomes part of the principal, and also starts to earn interest. Compound interest is what makes credit cards and loans so difficult to pay off. How to Manage Your Credit Cards. All rights reserved.