How does compound interest differ from simple interest?

Compound interest is characterized by the fact that it earns interest not only on the initial principal amount but also on any interest that has been added to that principal. This is often referred to as "interest on interest," which means that as time goes on, the total amount of interest accrued increases at a faster pace compared to simple interest, which does not take into account previously earned interest.

When using compound interest, the growth of the investment or loan accelerates because each interest calculation adds to the total amount that continues to earn interest in subsequent periods. This is a major advantage in finance, as it can lead to significantly higher returns over long periods compared to simple interest, which is calculated only on the principal.

While the other options touch on aspects of interest calculations, they do not accurately reflect the nature of compound interest. For example, compound interest does not limit its benefit to lower returns nor is it exclusive to specific types of accounts, making option B the most comprehensive and accurate description of its fundamental principle.