The Rule of 72 is most accurate for 8 percent and 9 years. The Rule of 69, which assumes daily compounding instead of annual compounding, has only four factors, 1, 3, 23 and 69. The number 70 has about half as many factors, namely 1, 2, 5, 7, 10, 14, 35 and 70. Variations on the Rule of 72, such as the Rule of 70, don’t work as well because they have fewer factors. The Rule of 72 works well because the number 72 has many factors, including 1, 2, 3, 4, 6, 8, 9, 12, 18, 24, 36, and 72. For example, to double an investment in 8 years, you will need an interest rate of about 9 percent, the result of dividing 72 by 8. In contrast, a bank CD earning 3 percent interest will take 24 years to double in value.Ĭonversely, you can determine the interest rate required to double the value of an investment in a specified number of years by dividing 72 by the investment term.
To use the Rule of 72, divide 72 by the interest rate to determine how long it will take your investment to double in value, based on the power of compound interest.įor example, you can estimate the doubling time for a lump sum investment in a 529 plan earning a 6 percent return on investment at about 12 years, by dividing 72 by 6.
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This, and other tricks of mental math, can help families figure out how to reach their college savings goals. The Rule of 72 is a simple rule of thumb for calculating how long it will take an investment to double in value.
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