For example, when you keep your money in the bank at 7% per annum, for a $100 savings, after the first year you would have $107. In the next year, the $107 would be at the same 7% bringing it to $114.49 and not $114. This would give you an additional $0.49. This may look small but in bigger sums it makes a difference. Also it would get larger as it continues to be compounded.
This is the basics of compounding interest and could work in your favor when saving for a long term goal.
