"Earning interest on your initial investment, as well as on the accumulated interest from previous periods."
Here's why:
* The core concept: Compounding is the snowball effect of interest. You earn interest on your principal, and then that interest is added to your principal, creating a larger base for future interest calculations.
* The power of time: The longer your money is invested and compounding, the more significant the impact.
* Example: If you invest $1000 at 5% interest, you earn $50 in the first year. The next year, you earn 5% on $1050, not just the initial $1000.
Let me know if you'd like more examples or explanations!
