Doubling Your Money:
The Rule of 72
So, you want to double your
money? Who doesn’t? Well, a math expert discovered
that if you use the number 72 in certain mathematical equations,
you can figure out two things:
• How long it takes to double your money
• What interest rate you need to double your money
This
expert called those certain equations The
Rule of 72. And here are the equations:
72 ÷ interest rate = the number of years it will take to
double money
OR
72 ÷ the number of years you want to double your money
= the interest rate you need
You can use these equations with whatever
the going interest rate is. And, you can use the answer to figure out how
to double any amount of money. We use the amount of $50
in the examples below. But, you can plug in any amount
you want--$25, $250, $2,500 and so on!
A little confusing, maybe? Check out the examples below.
| How long will it take for your $50 savings
balance to double? |
| Divide 72 by the interest rate. For
example: |
| 72 ÷ 4
(the interest rate) = 18 (years) |
| At
a 4 percent interest rate, your money will double in
18 years. |
| If
the interest rate is 8 percent, how long will it take
for your $50 to double? |
| 72 ÷ 8
(the interest rate) = 9 (years) |
So you can see, the higher the interest rate, the faster
your money doubles.
Now perhaps you’re thinking, “I have to wait 18
years to turn my $50 into just $100?
Well, chances are you’re
going to save a lot more than $50 over the course of 18 years.
Each time you make a deposit
into your savings account, it, too, will double in value in
18 years if it earns 4 percent interest.
Ok, let’s use the second equation to find out what interest
rate we need to double our money. Again, you can use any amount
of money. In our example below, we used $50 again.
| Let’s
say you want your $50 to double in four years so you
can use it toward college expenses. What interest rate
will you need to double your money? |
| Divide
72 by the years in which you want to double your money.
For example: |
| 72 ÷ 4
(years) = 18 (the interest rate) |
| You
think, “Wow, 18 percent is pretty high, I don’t
think I can earn that rate right now.” So you decide to wait
8 years for your money to double. What interest rate
do you need now? |
| 72 ÷ 8
(years) = 9 (the interest rate) |
| You
need 9 percent interest to double your money in 8 years. |
|
