What is compounding you ask? Compound interest is interest added to the principal of a deposit or loan, where the added interest also earns interest from then on Market Riders Sarah Brandon explains compounding in a simple way. If you save a dollar and invest it, it grows, right? Say you get a 7% return. After a year you have $1.07. No big deal, but here’s the nifty part. Now, instead of working for money, money begins to work for you.