Compound interest is the interest that is earned on the principal amount of a loan or deposit, as well as on the accumulated interest of previous periods. It is different from simple interest, which is calculated only on the principal amount.
For example, if you deposit $100 into a savings account that pays 5% annual compound interest, you will earn $5 in interest during the first year. The next year, the interest will be calculated not only on the original $100, but also on the $5 in interest that was accumulated in the first year. This means that you will earn interest on top of interest, leading to faster growth of your savings.
Compound interest can work in your favor when you are earning it on a savings or investment account, as it can help your money grow faster over time. However, it can also work against you if you are paying compound interest on a loan, as it can cause the total amount you owe to grow more quickly.