Compound interest refers to reinvesting the money you earned from your initial investment. The interest you earn each year is added to your original balance, which you then continue to earn interest on. Your balance grows at an increasing rate. The following example will show you exactly what kind of effect compound interest can have on your money: Would you rather have $10,000 every day for a month or a penny that doubles every day for a month? Most people will laugh at the idea of taking the doubling penny, but it turns out that this option earns you more than 15 times what the $10,000 does.