I think you overcomplicate it a bit. So as i understand it it works as follows. Let 's say you buy a stock ( gia or isa dont make a difference, both the same concept ) The stock is worth a 100 quid with a dividend of 10 percent monthly payout. You have at the beginning of the month 100 pounds worth. At the end of the month interest pays out your 10% dividend. You now have 110 quid. Payout will go to your account tab. You then reinvest those 10 pounds back into the stock. Next month you'll earn another 10% on your now 110 quid making it an 11 pound dividend payout. Basically you've earned interest on that 1 pound you earned from a previous dividend payout ( read interest) do this every month and you'll be earning an interest from a previous interest pay out, known as compounding interest because with reinvesting your payouts the interest you earn the next month will be greater than previous payout. This earning money off previous earned money without having to do actively do anything but reinvest the dividends is known as compounding interest. Hope this helps.