In, for example, a deposit account, this is where interest is added to both capital and the accrued interest from time to time. The longer a customer leaves an investment the more advantage they can make of compound interest. E.g. In Year 1 a customer is paid 10% on his/her £100 investment. At the end of Year 1 this investment is worth £110. In Year 2 with compound interest taken into account the customer now earns 10% on £110, giving him/her £121 by the end of Year 2. In Year 3 they earn 10% on £121 giving a grand total of £133.10.