The Rule of 72

The rule of 72 is one of those mathematical formulas that are great because it’s so simple, yet effective in showing you the dramatic effect of compound interest.

Simply, the rule of 72 says that the approximate amount of time (in years) that your money will double is 72 divided by the interest rate (in percentage).

For example, a quick calculation tells us that our money will double in 12 years if the interest rate is 6% (72 / 6 = 12) while the same gain could be had in 9 years if the interest rate increases to 8% (72 / 8 = 9).  Here’s a graph with more examples.

double money

2% means your money will double in 36 years while 12% means 6.  It’s no wonder why people are always hungry for a higher yield!

The rule of 72 is a nifty way of not just showing your friends that you are quick with math but also a convenient mechanism to illustrate the power of having a higher rate of return.

More on this topic (What's this?)
Equity Risk Premium In A Rising Interest Rate Environment
Anticipating The Rate Hike
Read more on Interest Rates, Rule of 72, Henders Land Dev at Wikinvest

Promote or Save This Article

If you like this article, please consider bookmarking or helping us promote it!

Print It | Email This | Del.icio.us | Stumble it! | Reddit |

Related Posts

{ 3 comments… read them below or add one }

premium finance July 5, 2009 at 11:11 pm

Great the rule of 72 is one of those mathematical formulas.

Reply

misanthropope July 16, 2009 at 11:50 pm

if you want to illustrate compound interest, one projected value isn’t enough (a straight line could as easily connect “now” to “then”, right?).

the “rule of 720″ is what gets the point across. in five years it doubles, whoop-dee-do. but in fifty, it THOUSAND-ifies.

luck to ya

Reply

premium finance May 7, 2010 at 12:31 am

Great the rule of 72 ! it’s so simple mathematical formulas!

Reply

Leave a Comment