How Rule of 72 Used To Calculate Investments

How Rule of 72 Used To Calculate Investments

Rule of 72 is a basic rule to determine how long it will take an investment to double with a given interest rate. This rule will give you a basic idea of the returns on your investment.

How The Rule Works.

So if you are doing an investment on fixed deposits with an interest rate of 8% p. a ( per annum) and if you want to know how much time it takes to get double the money you invested. Simply use this rule.

72 / Rate of Interest = Years taken to get the money doubled.

So if you are investing in an FD with 8 %

72/8 = 9 years

It takes 9 years to double your investment.

Check the latest FD interest rates.

If you want to double your money in a year ?

72/72=1 year

You should invest your money in something which gives 72% interest p.a. If you think its impossible, it is possible there are few businesses where the profit is more than 72%. The business which comes with higher returns also comes with high investments and high risk, as you see there is no free lunch.

You can also determine your savings bank account which is 4%. So 72/4 is 18 years to double your money if you keep in your SB account.

Rule Of 72 On Loans

You might have heard people saying that their loan got doubled since they dint pay the loan for a few years. You can apply the same Rule of 72 to know how that happened.

For example, lets us take a credit card loan. If the interest rate on a credit card loan is 21%. And you didn’t pay for 3.4 years (72/21), your loan gets doubled in 3.4 years.

Let’s assume you took a loan of 3 lakhs, and if you dint pay for 3.4 years the outstanding loan amount will be doubled to 6 lakhs.

So the Rule of 72 gives you a basic idea of what to expect from the investments you make.

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