Everybody loves the idea of doubling their money. But did you know there’s a simple formula that can help you understand how long it will take for your money to double?
It’s called the “Rule of 72.”
In this article, we’re going to explain the Rule of 72. We’re also going to show you how long it will take different amounts between $1,000 and $100,000 to double at a few common historical interest rates of growth.
What Is the Rule of 72?
Here’s a simple explanation of the Rule of 72: You can divide 72 by any interest rate to find out how long it will take your initial investment to double while growing at that interest rate.
So let’s say you have $12,000 invested at 6% interest. Under those conditions, it will take your money 12 years to double to $24,000, assuming you make no additional contributions.
The math here is easy: 72 divided by six (the interest rate) equals 12 (the number of years to double).
Or say you have $18,500 growing at 7% interest annually. Then it will take about 10 years and three months for your money to get to $37,000. Here, the math is 72 ÷ 7 = 10.28.
As you can see, it’s not the principal that matters when you’re crunching numbers using the Rule of 72: It’s the interest rate.
Ultimately, the Rule of 72 is just a quick way to understand how long it will take your investment to double.
As a rule, it has applications beyond just investment money. The Rule of 72 works for anything that grows over time such as inflation or even world population.
Common Examples of the Rule of 72
Saving and investing are long-term pursuits. It takes dedication and perseverance to do either one. Nowhere does that become more apparent than when you see how long it can take your money to double.
Say you start out with a nest egg of $1,000 that’s making an annual investment return of 4%. If you never contribute another penny to that stash, the power of compound interest growth means it will take 18 years to double to $2,000. That’s because 72 ÷ 4 = 18.
Eighteen years is a long time!
Now let’s say that same $1,000 was earning 8% interest annually. Then it would only take half the time or nine years. In this case, 72 ÷ 8 = 9.
Our table below shows how long it would take nest eggs of $1,000, $5,000, $10,000, $25,000, $50,000 and $100,000 to double at various interest rates.
Again, we’re assuming no future contributions. Additional contributions would speed up your growth rate considerably beyond what you see below.
|Initial Investment||4% Compound Annual Interest||6% Compound Annual Interest||8% Compound Annual Interest||Final Amount|
|$1,000||18 years||12 years||9 years||$2,000|
|$5,000||18 years||12 years||9 years||$10,000|
|$10,000||18 years||12 years||9 years||$20,000|
|$25,000||18 years||12 years||9 years||$50,000|
|$50,000||18 years||12 years||9 years||$100,000|
|$100,000||18 years||12 years||9 years||$200,000|
You’ve probably heard the saying, “Money doesn’t grow on trees.” While that’s certainly true, the Rule of 72 may be the next best thing. It offers a quick, simple way for you to estimate how long it will take your money to double.
As you can see, it can take a long time! That reinforces the idea that you’ve got to save additional money over the long haul.
If you have other questions about investing, consider contacting our Consumer Action Center.