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Rule of 72 Presentation

The Rule of 72 is a simple way to estimate how long it will take an investment to double at a given annual interest rate. You divide 72 by the interest rate to get the approximate number of years. It works because it approximates the effects of compound interest. While calculators can provide more precise doubling times, the Rule of 72 is useful when only basic math is available. Using examples, it shows that even modest increases in interest rates over time can have a dramatic impact on the doubling of an investment. The takeaway is that starting to invest early and taking advantage of compound interest over many years is key to growing savings significantly.

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196 views17 pages

Rule of 72 Presentation

The Rule of 72 is a simple way to estimate how long it will take an investment to double at a given annual interest rate. You divide 72 by the interest rate to get the approximate number of years. It works because it approximates the effects of compound interest. While calculators can provide more precise doubling times, the Rule of 72 is useful when only basic math is available. Using examples, it shows that even modest increases in interest rates over time can have a dramatic impact on the doubling of an investment. The takeaway is that starting to invest early and taking advantage of compound interest over many years is key to growing savings significantly.

Uploaded by

Anand
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Compound Interest

RULE OF 72
BROUGHT TO YOU BY
“Money makes money.
And the money that money
makes, makes money.”

– Ben Franklin
Compound interest =
earning interest on your interest
Rule 72
You can use the

of
to approximate how long it will take for an
investment to double at a given interest rate
USEFUL FOR

COMPARING SAVINGS RETIREMENT


INVESTMENTS GOALS GOALS
HOW TO 72

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
HOW TO 72

INTEREST YEARS TO
RATE DOUBLE

72 ÷ R = T
HOW TO 72

3% ANNUAL
INTEREST 24 YEARS
RATE TO DOUBLE

72 ÷ 3 = 24
COMPARING THE MATH

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
COMPARING THE MATH

This table illustrates just how close the Rule of 72 is to the actual doubling time

Interest rate Actual years Rule of 72


1% 69.66 72.00
2% 35.00 36.00
3% 23.45 24.00
4% 17.67 18.00
COMPARING THE MATH

This table illustrates just how close the Rule of 72 is to the actual doubling time

Interest rate Actual years Rule of 72


5% 14.21 14.40
6% 11.90 12.00
7% 10.24 10.29
8% 9.01 9.00
COMPARING THE MATH

This table illustrates just how close the Rule of 72 is to the actual doubling time

Interest rate Actual years Rule of 72


9% 8.04 8.00
10% 7.27 7.20
11% 6.64 6.55
12% 6.12 6.00
Doubling
IN ACTION
Years 1.5% 3% 6% 12%
0 $10,000 $10,000 $10,000 $10,000
Modest 6 $20,000
increases in 12
In times of
historically $20,000 $40,000
rates have 18 low interest
rates, it’s
$80,000

a dramatic 24 especially
important
$20,000 $40,000 $160,000

effect on the 30 to start


investing
$320,000
36 $80,000 $640,000
doubling time early
42 $1,280,000
48 $20,000 $40,000 $160,000 $2,560,000
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
BROU GHT TO YOU BY

Sources: All the Math You’ll Ever Need by Steven Slavin, BetterExplained.com

It’s a Money Thing is a registered trademark of Currency Marketing

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