Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. Thought to have originated in 17th-century Italy, it is "interest on interest."
Unlike simple interest, which is only calculated on the principal amount, compound interest grows exponentially. For example, if you invest $1,000 at a 10% annual interest rate, you'll have $1,100 after the first year. In the second year, the 10% is calculated on $1,100, giving you $121 in interest rather than just $100.
"Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't... pays it." — Albert Einstein
A quick way to estimate how long it takes to double your money is the Rule of 72. Divide 72 by your annual interest rate. At 6%, your money doubles in 12 years (72/6=12).