Think of compound interest like a snowball rolling down a hill; as it gathers snow (interest) on its outer layers, the snowball gets bigger, allowing it to collect even more snow with each subsequent rotation.

The process follows a geometric progression where the principal increases exponentially over discrete time intervals. Unlike simple interest, which is calculated only on the initial principal, compound interest uses the formula $A = P(1 + \frac{R}{100})^n$, where $A$ is the final amount, $P$ is the principal, $R$ is the rate, and $n$ is the number of periods. The interest component is derived by subtracting the initial principal from the accumulated amount.

In competitive exams, always check if the question asks for 'simple' or 'compound' interest; compound interest will always be higher than simple interest for periods greater than one year at positive rates.