what is compounding 
compounding is when an investment increases exponentially in value over time the growth is exponential because both the principal investment and the interest continue to earn interest for example if a person invests 20 000 in a company and earns 25 interest on that investment in the first year at the end of the year his investment will be worth 25 000 the following year it is the full 25 000 that earns the same interest bringing its value to 31 250 the following year that means with compounding the net amount earned from interest every year is higher than the previous year 