Which describes the difference between simple and compound interest?

Simple interest is calculated as a percentage of the initial amount borrowed, or principal. The interest is only earned on the principal, and does not change for the life of the loan. Compound interest is interest that is calculated on both the principal and any accumulated interest from the previous periods. The rate of interest can vary during the life of the loan and the interest accumulates over time, with each payment period resulting in a higher balance compared to the previous period.