Ever borrowed money from a payday lender or left a balance on your credit card? Notice how the debt just grows and the balance becomes impossible to pay off. This is due to the compound interest effect.

This also works for investing!

Consider two individuals; Pam and Sam are 25 years old.

Pam invested $25,000 at an interest rate of 5.0% compounded annually. By the time Pam reaches 65, she will have $176,000 ($25,000 x [1.05^40]) in her Helium Investments account. Sam also invested $25,000 at the same interest rate of 5.0% without being compounded annually. By the time Sam reaches age 65, he will have $ 75,000 ($25,000 + ($25,000 x .05 x 40)) in his Helium Investments account. Pam has $101,000 ($176,000 - $ 75,000) more in her savings account than Sam, even though he invested the same amount of money. The following chart shows Pam and Sam's earnings: 

You can see that both investments start to grow slowly and then accelerate, as reflected in the increase in the curves' steepness. Pam's line becomes steeper as she nears her 50s not simply because she has accumulated more interest, but because this accumulated interest is itself accruing more interest.