In compound interest, the investment grows much faster than the simple interest as the interest is paid on both investments and previous interest. Let's calculate the interest income for an investment of Rs 1 lakh at a rate of 20% p.a. for a period of 3 years. The simple interest earned will be I= P*R*T/100 That is, I = 1,00,000*20*3/100 = Rs 60,000 And in case of compound interest, amount is P (1 + r/n) ^ not That is, A=1,00,000(1+0.2) ^3 = 1,00,000(1.728) = 1,72,800 Hence, I = A-P i.e. 1,72,800-1,00,000 = Rs 72,800 You can see it yourself that there is a great difference in the returns between the two. Therefore, compound interest proves to be a good option for investment the return is higher than simple interest.