Compound Interest: The Rule of 72

Compound interest means earning interest on your interest-you can use the Rule of 72 to approximate how long it will take for an investment to double at a given interest rate.

Divide the rule number (72) by the annual interest rate (R) to find out the approximate time (T) required for doubling.

**The Rule of 72 only applies to compound interest, not to simple interest calculations.

Although scientific calculators and spreadsheet programs have functions to find the accurate doubling time, the Rule of 72 is useful for mental calculations or when only a basic calculator is available.

Modest increases in rates have a dramatic effect on the doubling of time. See the image to the right.

The Takeaway

Use the Rule of 72 to estimate your potential savings. Time is money when it comes to compound interest-the longer you wait to get started, the less interest you’ll earn.

ABSOLUTELY NO GUARANTEES
All investments carry the risk of losing some or all of your money, even when made through a financial advisor or financial institution.

Brought to you by It’s a Money Thing