Rule of 72
Although financial calculators are great to have, occasionally you need to be able to make some
estimates about investments in your head. For that, just about every financial planner uses the
Rule of 72:
To find the number of years required to double your money at a given interest rate, divide the interest rate into 72.
For example, if you want to know how long it will take to double your money at eight
percent interest, divide 8 into 72 and you get 9 years (assumes interest is compounded annually).
Exact calculations show that as long as the interest rate is below 20% the rule is very accurate,
and at higher interest rates the Rule of 72 still rounds off accurately to the nearest year as can
be seen in the following comparison table:
The rule can also be used in reverse to figure out interest rates. For example, if you want
to double your money in six years, just divide 6 into 72 to find that it will require an interest rate of about 12 percent.
