Rule of 72 Calculator by Years + Interest Rate (2024)

FAQs

Rule of 72 Calculator by Years + Interest Rate? ›

The rule is this: 72 divided by the interest rate number equals the number of years for the investment to double in size. For example, if the interest rate is 12%, you would divide 72 by 12 to get 6. This means that the investment will take about 6 years to double with a 12% fixed annual interest rate.

Do you know the Rule of 72? It's an easy way to calculate just how long it's going to take for your money to double. Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double.

How Do You Calculate the Rule of 72? Here's how the Rule of 72 works. You take the number 72 and divide it by the investment's projected annual return. The result is the number of years, approximately, it'll take for your money to double.

A = P(1 + r)^n; where A is the amount after time, n; P is the principal (the invested amount); r is the interest rate and n is the number of periods (i.e. no of years since the amount is compounded annually). Therefore, the amount will double in approximately 14 years.

In a less-risky investment such as bonds, which have averaged a return of about 5% to 6% over the same period, you could expect to double your money in about 12 years (72 divided by 6). Keep in mind that we're talking about annualized returns or long-term averages.

If you need to double your financial investment in 10 years, a savings account with a 5% interest rate, for instance, wouldn't help achieve your goals. You'd need something with a higher rate of return (at least 7.2%) to make that 10-year milestone happen.

Note that the interest in a savings account is money you earn, not money you pay. The formula for calculating simple interest is: Interest = P * R * T. P = Principal amount (the beginning balance).

Hence, if a two-year savings account containing $1,000 pays a 6% interest rate compounded daily, it will grow to $1,127.49 at the end of two years.

Summary: An investment of $10000 today invested at 6% for five years at simple interest will be $13,000.

∴t=10 years.

Is the Rule of 72 accurate? ›

The rule of 72 is only an approximation that is accurate for a range of interest rate (from 6% to 10%). Outside that range the error will vary from 2.4% to 14.0%. It turns out that for every three percentage points away from 8% the value 72 could be adjusted by 1.

One of those tools is known as the Rule 72. For example, let's say you have saved $50,000 and your 401(k) holdings historically has a rate of return of 8%. 72 divided by 8 equals 9 years until your investment is estimated to double to $100,000.

Key Takeaways

All you do is divide 72 by the fixed rate of return to get the number of years it will take for your initial investment to double. You would need to earn 10% per year to double your money in a little over seven years.

Below is a simple formula used to calculate appropriate interest rates according to the Taylor rule: Target Rate = Neutral rate + 0.5 (GDPe - GDPt) + 0.5 * (Ie - It).

The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double. In this case, 18 years.

It is calculated by dividing the number 70 by the investment's growth rate. The calculation is commonly used to compare investments with different annual interest rates.

Answer and Explanation:

Therefore, the interest rate earned on the $1,400 deposit is approximately 28.57%. So, the Simple interest is $400.