“Compound interest is the eighth wonder of the world,” Albert Einstein supposedly . “He who understands it, earns it. He who doesn’t, pays it.”

Essentially it refers to earning interest on both the principal and the interest accumulated over time, which increases or compounds with each interest payment.

“An easier way to think of compound interest is that is it ‘interest on interest,’ where the amount of the interest payment is based on changes in each period, rather than being fixed at the original principal amount,” the Corporate Finance Institute.

“The power of compounding helps a sum of money grow faster than if just simple interest were calculated on the principal alone,” Investopedia. “For savings and investments, compound interest is your friend, as it multiplies your money at an accelerated rate. But if you have debt, compounding of the interest you owe can make it increasingly difficult to pay off.”

“Interest can be compounded--or added back into the principal--at different time intervals,” Forbes. “For instance, interest can be compounded annually, monthly, daily or even continually. The more frequently interest is compounded, the more rapidly your principal balance grows.”

Here are two examples of the power of compound interest at work:

Compound interest calculators can be found on and , among other sites.