Compound interest is what occurs when you earn interest, on your interest.
If you have funds in a savings account, that money will in most cases earn interest. If you don’t withdraw that interest and instead leave it in the account, it will help to grow your account balance. When your next interest payment is calculated, it is worked out on the larger account balance and earns even further interest.
Compounding works the same way for investments. If each time you earn a dividend, distribution or income payment from your investment you reinvest these funds to buy more units or shares, your reinvested earnings will generate additional earnings.
Compounding can make a vital difference to the value of your savings and investments over time. The longer your money is invested, the bigger the effect compounding can have, so to take full advantage of this strategy, think about starting early