Simple interest, compound interest and CAGR answer different questions

These three calculations can all produce a percentage or an ending balance, but they start with different questions. Simple interest models interest on unchanged principal. Compound interest allows growth to earn more growth. CAGR looks backwards from two values and finds the constant annual growth rate that connects them.

Keep the example comparable

Start with ₹1,00,000, use 8% a year, and leave the money for two years without deposits, repayments, taxes or fees. With simple interest, each year adds ₹8,000 based on the original principal. The ending balance is ₹1,16,000. With annual compounding, year two earns interest on ₹1,08,000, producing an ending balance of ₹1,16,640.

Run the first case in the simple interest calculator and the second in the compound interest calculator. Keep the compounding frequency annual and regular contributions at zero so that only the interest treatment changes.

What CAGR does with those endpoints

For ₹1,00,000 growing to ₹1,16,640 over two years, CAGR is 8%. For the simple-interest ending value of ₹1,16,000, CAGR is about 7.7033%. The simple contract still paid 8% of original principal each year; its equivalent compounded annual rate is a different description of the same final amount.

The CAGR calculator takes the endpoints and duration rather than assuming the quoted simple rate is already a compounded return. This helps explain why dividing total percentage growth by years does not usually reproduce the compound growth rate.

Check the time basis

Six months means half a year in the simple calculator. A day-based calculation requires a denominator such as 365 or 360; it does not automatically implement every bank's calendar convention. If your agreement specifies a different method, an apparently small discrepancy can reflect that convention rather than an arithmetic error.

Do not apply an unchanged-principal model to repayments

A repayment loan reduces principal as payments arrive. A simple-interest calculation that keeps the full principal outstanding until the end is not its repayment schedule. Likewise, a projection that compounds every year is not evidence that an investment will earn a constant rate.

Choose dated cash flows when money moves

Once you add deposits or take withdrawals, comparing only the first and last values confuses contributions with investment performance. The XIRR calculator uses dated flows and a closing valuation for supported cash-flow patterns. Keep that measured-return question separate from a future-growth projection.