With simple interest, income each period is calculated from the initial amount. With compound interest, accrued amounts are added to the principal, and the next period generates income on a larger base. The difference between these two schemes is minor over short periods but becomes decisive over long ones.
The effect is nonlinear: it strengthens over time, so the main growth occurs in later years rather than early ones. This makes time a more significant factor than the difference in rates: investments started earlier with modest returns often outpace those started later with high rates.
To realize this effect, income must be reinvested. A deposit with monthly interest paid to a card works on a simple interest scheme if those amounts are spent; the same rate with capitalization produces compound interest.
The mechanism also works against borrowers—when interest is charged on accumulated debt. In both cases, results should be assessed in real terms: growth that does not exceed inflation increases the sum but not purchasing power.