what is the best example of compounding 
high yield savings accounts are a great example of compounding let s say you deposit 1 000 in a savings account in the first year you will earn a given amount of interest if you never spend any money in the account and the interest rate at least stays the same as the year before the amount of interest you earn in the second year will be higher this is because savings accounts add interest earned to the cash balance that is eligible to earn interest the bottom linecompounding and compound interest play a very important part in shaping the financial success of investors if you take advantage of compounding you ll earn more money faster if you take on compounding debt you ll be stuck in a growing debt balance longer by compounding interest financial balances are able to exponentially grow faster than straight line interest 