What is the Rule of 72?


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A simple lesson in savings

The first thing every saver wants to know when they save is how long it will take them to double their money. There’s a rule that makes calculating that easy: the rule of 72.

What exactly is the rule of 72?

It’s a rule of savings that allows you to determine the number of years it will take to double an investment simply. It’s calculated by dividing the number 72 by the interest rate the savings vehicle earns. Therefore, if you invested in a savings vehicle that pays 6% APY, you would double your money in 12 years, which is 72/6.

Can I calculate interest rates with the rule of 72?

If you’re looking to determine the interest rate you would need to double your investment, you can also do so using the rule of 72.

So, for example, if you have a young child and want to save for their college education in 16 years, you can calculate the interest rate you’d need in order to double the amount of your investment by dividing 72 by the number of years. Using this example, you would need to earn an interest rate of 4.50% (72/16) to double your investment.

 

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