Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus any previously earned interest — meaning your interest earns interest over time.
A = P × (1 + r/n)^(nt) where A = final amount, P = principal, r = annual interest rate, n = compounding frequency per year, and t = time in years.
Interest can compound annually, semi-annually, quarterly, monthly, weekly, or daily. The more frequently it compounds, the higher the final amount for the same stated rate.
Starting early is the most powerful factor in compound interest growth. Reinvesting your interest rather than withdrawing it allows the compounding effect to fully work in your favor.