The Rule of 72

When investing or saving money, people often have a goal in mind of how much money they would like to save over a given period. The Rule of 72 is a simple way to approximate the amount of time it takes, at a particular interest rate, for an investment to double in value. It can also be used to determine the interest rate required to double your money in a particular amount of time.

Let’s say you want to know how long it will take to double your money at a 5% interest rate. Divide the number 72 by your interest rate 5 (72/5) , to arrive at 14.4. It would therefore take you about 14.4 years to double your money at an interest rate of 5%.

The exact amount of time required to double your investment depends on how frequently interest is compounded. Learn more about compound interest here.

If you know how long you would like to save for, but you are not sure what interest rate would be required to double your money, you can use the rule of 72 in reverse to calculate this. Instead of dividing 72 by the interest rate, this time you would divide 72 by the number of years you want to save for. Let’s say you want to double your investment in 7 years: dividing 72 by 7 gives about 10.3 . You would require an interest rate of 10.3% in order to double your money in 7 years.

2 Responses to “The Rule of 72”

  1. Demarcus says:

    The rule of 72 is great and is not only useful to finding the doubling time of money, but also of population growth. I remember using it AP Environmental Science.

  2. efpierce says:

    What an interesting way to get to the final amount. I have never heard of that and yet it’s so easy to use. Thanks!

Leave a Reply

Your email address will not be published. Required fields are marked *