Compound interest means earning interest on your interest. Over a long period this snowball effect can make a large difference to savings and to debts.
A simple example
If you save 1,000 at 5 per cent a year, you earn 50 in the first year. In the second year you earn interest on 1,050, so you earn 52.50. The extra amount seems small, but it grows every year you leave the money alone.
Time matters more than size
Starting earlier gives the process more years to work. A smaller amount saved over a long period can overtake a larger amount saved later.
The same rule applies to debt
Credit cards and some loans compound against you. Paying only the minimum lets interest build on interest. When you borrow, check the annual rate, how often interest is added and whether early repayment is allowed.