Compounding is the “magic” that happens when you save and invest money over many years. It can be tricky to understand because the numbers grow bigger than you might initially expect. Simply put, compounding is the snowball effect that occurs when your money is reinvested over time – that is, when the interest from a bank account or return from an investment account keeps getting added to your balance. Compounding is what makes your money work hard. It’s also the reason why it pays to start saving as soon as possible, because the longer your money is invested, the more time the snowball has to grow. Here’s how it works.