Compound interest means returns can themselves begin to earn returns. Time matters because each period builds on the balance created by the periods before it.
The basic formula
A simplified model is A = P(1 + r/n)nt, where P is the starting amount, r is the annual rate, n is the number of compounding periods per year and t is the number of years. Real investments do not provide a guaranteed constant rate.
A small example
If $1,000 grew at a hypothetical 5% annual rate and compounded once per year, it would become about $1,051 after one year and about $1,276 after five years, before taxes, fees and inflation. The example illustrates the mechanism, not a promise of performance.
Contributions change the picture
Regular contributions add new principal while earlier contributions continue to grow. Starting early can reduce the amount that must be contributed each period, but the right saving rate depends on income, goals, debt and access to emergency cash.
What the idea leaves out
Markets fluctuate, rates change and inflation reduces purchasing power. Fees and taxes matter too. Compare assumptions with actual product documents and consider professional advice before making an investment decision.