Rule of 72

Amaze your friends, family, and associates by telling them instantly how long it takes money to double on a fixed interest rate compounded monthly. (edited to show monthly and not annually, jhny's comment below has proven me wrong)

Here's how:

To find the number of years required to double your money at a given interest rate, you just divide the interest rate into 72. For example, if you want to know how long it will take to double your money at 8% interest, divide 8 into 72 and you get 9 years. This works vice versa if you want to know the interest given the number of years your money will double.

All you have to remember is the number 72. So next time you're in a bank or someone tells you that he/she can double your money in a number of years or given a percentage point , you know what to do.

ex. Someone approach you to invest in a business venture and says that your money will double in 3 years. Divide 72 by 3=24%. Meaning, the business has to make at least 24% to double your money and more than that for the venture to last. Sounds like a very risky investment isn't it?
Vice versa, someone tells you to put your money in a time deposit with an interest rate of say 3% compounded monthly. Now the expert in you comes alive--72 divide by 3=24. Meaning your money will double in 24 long years.



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