What is compound interest and how does it work?

Compound interest means you earn returns not just on your original investment but also on all previous returns. $10,000 at 8% annual return grows to $10,800 after year 1, then $11,664 after year 2 (earning on the $800 gain), and so on. Over 30 years, that $10,000 becomes about $100,000 without adding another dollar. Compound growth accelerates dramatically over longer time periods.