Rule of
72
The Rule of 72 says that to find the number of years required to double your money at a given interest rate, you just divide the interest rate into 72. The Rule of 72 does take into consideration that interest is compounded annually. The Rule of 72 is remarkably accurate, as long as the interest rate is less than about twenty percent; at higher rates the error starts to become significant. Like any rule of thumb, this rule is only good for approximations.
For example, if you want to know how long it will take to double your money at 20 percent interest, simply divide 20 into 72 and you will see that it takes 3.6 years. The following examples below will illustrate how the Rule of 72 works.
|
Percentage
Return
|
72
Divided by Return
|
Years
to Double Money
|
20%
|
72
divided by 20
|
3.6
|
19%
|
72
divided by 19
|
3.8
|
18%
|
72
divided by 18
|
4.0
|
17%
|
72
divided by 17
|
4.2
|
16%
|
72
divided by 16
|
4.5
|
15%
|
72
divided by 15
|
4.8
|
14%
|
72
divided by 14
|
5.1
|
13%
|
72
divided by 13
|
5.5
|
12%
|
72
divided by 12
|
6.0
|
11%
|
72
divided by 11
|
6.5
|
10%
|
72
divided by 10
|
7.2
|
9%
|
72
divided by 9
|
8.0
|
8%
|
72
divided by 8
|
9.0
|
7%
|
72
divided by 7
|
10.3
|
6%
|
72
divided by 6
|
12.0
|
5%
|
72
divided by 5
|
14.4
|
4%
|
72
divided by 4
|
18.0
|
3%
|
72
divided by 3
|
24.0
|
2%
|
72
divided by 2
|
36.0
|
1%
|
72
divided by 1
|
72.0
|
You can also run it backwards: if you want to double your money in 3.6 years, just divide 3.6 into 72 and you will see that it takes an interest rate of approximately 20%.
|
Years
to Double Money
|
72
Divided by # Years
|
%
Return Needed
|
3.6
|
72
divided by 3.6
|
20%
|
3.8
|
72
divided by 3.8
|
19%
|
4.0
|
72
divided by 4.0
|
18%
|
4.2
|
72
divided by 4.2
|
17%
|
4.5
|
72
divided by 4.5
|
16%
|
4.8
|
72
divided by 4.8
|
15%
|
5.1
|
72
divided by 5.1
|
14%
|
5.5
|
72
divided by 5.5
|
13%
|
6.0
|
72
divided by 6.0
|
12%
|
6.5
|
72
divided by 6.5
|
11%
|
7.2
|
72
divided by 7.2
|
10%
|
8.0
|
72
divided by 8.0
|
9%
|
9.0
|
72
divided by 9.0
|
8%
|
10.3
|
72
divided by 10.3
|
7%
|
12.0
|
72
divided by 12.0
|
6%
|
14.4
|
72
divided by 14.4
|
5%
|
18.0
|
72
divided by 18.0
|
4%
|
24.0
|
72
divided by 24.0
|
3%
|
36.0
|
72
divided by 36.0
|
2%
|
72.0
|
72
divided by 72.0
|
1%
|
Past performance is no guarantee of future results.
**Source of index returns: FT Interactive Data Corp.
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