I’m a huge fan of math tricks, especially when it makes solving complex issues just a little bit easier. There’s a great trick that can be used to easily figure out how long it will take compounding interest to double your investment: it’s called The Rule of 72.
This is an easy trick. You simply divide 72 by your interest rate to solve for the number of years that it will take your initial investment to double in value.
Let’s take a look at a few examples. At my credit union the savings account pays 1% interest, so 72 divided by 1 is 72 – it will take an investment of $1,000 (or any amount) 72 years to double at a rate of 1 percent. On the other hand the current rate on the Orange Savings Account at ING Direct is 2.4%. So 72 divided by 2.4 is 30 – or in other words it will take 30 years for my investment to double if I were to place it in the Orange Savings Account.
See how much of a difference a small percentage increase can make? Let’s really have some fun with this now. If you could manage a return of 10% annually you could double your initial investment in 7.2 years! Or if you could manage a return of 15% you would be able to double your investment in 4.8 years!
The Rule of 72 can also be used to calculate a interest rate you’ll need to double your money in a certain amount of years. For example let’s say you want to double your money in 3 years. So divide 72 by 3 and you’ll come up with 24, which means you’ll need to earn a return of 24% in order to double your money in 3 years.