Compound interest means earning interest on your interest — not just on what you put in. A £10,000 investment at 5% per year earns £500 in year one. In year two it earns interest on £10,500, giving £525. The gap widens every year, which is why time is the most powerful variable in the calculation. Albert Einstein may or may not have called it the eighth wonder of the world, but the maths is unambiguous.
Compounding frequency matters more than most people expect. The same annual rate compounds to a higher total when applied monthly rather than annually, because each month's interest starts earning sooner. Daily compounding adds a little more still, though the difference between monthly and daily is small compared to the difference between annual and monthly. For savings accounts and ISAs, monthly compounding is typical. For some bonds and fixed-term deposits, annual compounding is the norm — always check the terms.