Simply put, compound interest is increased interest that a loan accrues as it is effected by interest. The value of an unpaid loan increases over time at a fixed percentage known as interest. As the total amount increases, so does the percentage, which is added to the total. For example, if a loan of $100 has a 10% interest rate, the balance will stand at $110 after 1 year. As 10% of 110 is 11, the following year the balance will increase by $11 – and so on, for as long as balance of the loan continues to grow.