What Is Compound Interest? | Investopedia?

Compound interest is when your money grows by earning interest on both the original amount and the interest it already earned.

Imagine you have a piggy bank where every year, it gives you some candy as a thank-you gift. But here’s the fun part, not only do you get candy for the original amount in the piggy bank, but you also get extra candy for the candy you received in previous years! That means your candy pile gets bigger and bigger each year.

Let’s say you start with 10 pieces of candy (that's your principal). If the piggy bank gives you 1 piece of candy every year (interest rate), after one year, you’ll have 11 candies. Next year, it will give you interest on 11 candies, that’s 1.1 candies! So now you have 12.1 candies. It keeps growing like this each year because the interest is added to your total amount (compounding).

With compound interest, your money (or candy) doesn’t just grow a little, it grows more and more every time. This is why people love using compound interest when they save or invest; it helps their money work harder for them!