The Rule of 72.
Do you want to know how quickly your money could develop into double?. The Rule of 72 approximately tells you how long years it will take for your money to grow into two times, given a fixed annual rate of interest. According to the rule, just divide the number 72 by your annual interest rate.
The formula is simple: 72/ interest rate = years to double
Also read: Power of compounding effect: Eighth wonder of the world
Predict when your money will be doubled.
Suppose you invested 5 lakh rupees in an investment with a 10 % interest rate. Then divide 72/10 = 7.2, you get 7.2 years. It takes 7.2 years to double your money from 5 lakh to 10 lakh at an interest rate of 10%. But in reality, investment at the rate of interest of 10% takes 7.27 years to double. You can also use this rule to find out at what interest rate your money could double in a particular time. Suppose you want to double your money in 9 years then 72/9 = 8. To double your money in 9 years you should choose an investment at 8%.
| Annual Interest Rate | The Rule of 72 | The Rule of 69.3 | Actual Number of Years |
|---|---|---|---|
| 1% | 72.00 | 69.30 | 69.66 |
| 2% | 36.00 | 34.65 | 35.00 |
| 3% | 24.00 | 23.10 | 23.45 |
| 4% | 18.00 | 17.33 | 17.67 |
| 5% | 14.40 | 13.86 | 14.21 |
| 10% | 7.20 | 6.93 | 7.27 |
| 20% | 3.60 | 3.47 | 3.80 |
| 30% | 2.40 | 2.31 | 2.64 |
| 50% | 1.44 | 1.39 | 1.71 |
| 75% | 0.96 | 0.92 | 1.24 |
| 100% | 0.72 | 0.69 | 1.00 |
The rule of 72 works reasonably accurately for compound interest rates below 10% and odds to simple interest. This rule works for anything that grows exponentially like GDP, Inflations, Loans, and Investments.
Aslo Read: The Secret behind why Pig chosen for Piggy bank
The Rules of 69 and 69.3.
Rules of 69 and 69.3 are also the ways to find out how many years your investments are taken to double. Even though the rule of 69.3 is recognized as more accurate than the rule of 72. The rule of 69.3 is not preferred because of the difficulty in the calculation. In scientific calculators and MS Excel, we can calculate the accurate doubling time but the rule of 72 is useful for mental calculations.
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