Compound interest is interest that is calculated on both the initial investment as well as the interest that has already accrued.
As soon as interest is added to the primary investment, that interest begins to also earn interest. This concept can apply when talking about the interest of a principal deposit, loan, or debt. The concept of compounding interest allows for the idea that money grows at an exponential rate. It permits the original investment to mature at a much faster rate than simple interest. The rate at which the interest is compounded is fixed in the beginning stages of purchasing an investment or taking out a loan.