Compound interest is the return you earn not just on your original capital but on the gains that capital has already produced. Each period's growth is added to the base, so the next period's growth is calculated on a larger amount. Given enough time, this snowball effect becomes the single biggest driver of investment outcomes.
Time matters far more than the rate. A modest return compounding for thirty years can outgrow a much higher return compounding for ten, because the later years produce the largest absolute gains. That is why starting early — even with small amounts — is so powerful.
The same mechanism works against you on debt. A credit-card balance compounds in the lender's favour, which is how high-interest debt spirals. Compounding is neutral; it simply amplifies whatever direction you are already heading.
Worked example
$1,000 compounding at a hypothetical 8% a year grows to about $2,159 after 10 years and roughly $10,063 after 30 — most of the gain arrives late.
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This definition is general education, not investment advice. Markets — especially crypto — are volatile and you can lose money. Please read our disclaimer and see our methodology.