You have $100 that you deposit the bank at 5% interest. At the end of the month, the bank pays you $5 in interest. You now have $105.
If you leave the $105 in the bank for another month, you’ll earn more interest because you have more money. So instead of $5 in interest, you’ll get $5.25
Next month you’ll get another $5.76, and the interest keeps going up.
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