Compounding in interest is the effect of having a sum of money which earns interest over a period. Over the following period, the interest is earned on the original sum and the amount of interest earned so far.
The effect of compounding can be enormous, because of this notion of 'earning interest on interest'.
The power of compounding was called the eighth wonder of the world by Albert Einstein, or so the story goes. He also is rumoured to have said: "He who understands it, earns it. He who doesn't, pays it."
