What compounding means
When interest is added to your balance, future interest can be calculated on a larger amount. Over longer periods, that “interest on interest” effect becomes more noticeable — especially if you keep adding regular deposits.
What matters most in practice
For cash savings, the practical levers are the AER you earn, how long the money stays invested in the account, and whether you top it up. A slightly lower rate you actually keep funded often beats a headline rate you never use.
Review rates periodically with our [better savings rates](/guides/saving-money/high-interest-savings-tips) guide, and don’t lock emergency money away just to chase compounding.