Rule of 72 quickly compares interest earnings
How long will it take to double your money? To find out, use the long-established ''rule of 72,'' suggests Gordon Ramsey, a partner in the Los Angeles office of Coopers & Lybrand, the accounting firm.
Here's how it works: Take an interest rate being offered by a bank, money market fund, insurance company, or some other provider of savings vehicles and divide it into 72. If, for instance, your savings are paying 9 percent, 9 divided into 72 equals 8 years. That's how long it would take to double your money - provided, of course, that the interest rate stayed at 9 percent the whole time.
The rule of 72 can also help you find the interest rate needed to double your money in a specified period of time. Say you hope to double your money in seven years and you want to know what interest rate you need to do that. Divide 7 into 72 and you get 10.28, the rate you need to achieve your goal.
Using the rule of 72 this way is particularly handy when buying long-term certificates or other investments.