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Simple vs compound returns

Why money grows faster when you reinvest the returns.

The formulaSimple = amount × (1 + rate × years)Compound = amount × (1 + rate)^years

With simple returns you earn only on the original amount. With compound returns you also earn on past gains.

Example: 1,000 rials at 5% a year for 3 years

Simple1,000 × (1 + 0.05 × 3) = 1,150

Compound1,000 × 1.05³ = 1,157.63

And after 10 years

Simple1,000 × (1 + 0.05 × 10) = 1,500

Compound1,000 × 1.05¹⁰ = 1,628.89

Gap128.89

The gap is small at first, then widens every year. That's why starting early matters.

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All content on this site is for educational purposes only and is not investment advice or a recommendation. Past performance does not guarantee future results. Consult a licensed adviser before making any investment decision.