Compound interest

Compound interest is interest paid on both the original amount and on the interest already added. Each period the balance grows, so the next period earns interest on a larger sum, and the growth accelerates as time goes on.

Simple interest, by contrast, is always worked out on the original amount only, so it grows in a straight line. The difference between the two is small over a year and substantial over decades, which is why the time horizon matters so much.