How does compound interest work? Give a simple example.

Compound interest means you earn interest on both your original money and the interest already earned. Example: $1,000 at 10% per year. Year 1: $1,100. Year 2: $1,210 — the extra $10 is interest on the $100 you earned in year 1. Over time the curve accelerates, which is why starting early matters: A = P(1 + r/n)^(nt).