Calculate simple interest using I = P × R × T and compare with compound interest.
Simple interest is calculated only on the original principal amount. Unlike compound interest, you don't earn interest on previously earned interest. Simple interest is commonly used for short-term loans, car loans, and some bonds.
On $10,000 at 5% for 10 years: Simple interest = $5,000 total. Compound interest (monthly) = $6,470. The longer the time period, the bigger the gap between simple and compound interest.