Define "compound interest".

Compound interest refers to the process of earning interest on both the initial principal amount and the interest that has previously been added to that principal. This means that over time, the interest itself can accrue more interest, leading to exponential growth of the investment or loan balance.

When interest is compounded, it differs from simple interest, which is calculated only on the initial principal. As a result, with compound interest, the amount you earn (or owe) grows at a faster rate because the interest earned in previous periods is added to the principal for future interest calculations.

This fundamental principle of finance demonstrates the power of reinvestment in wealth accumulation or debt growth, making it a crucial concept to understand for effective financial planning and management.