Rule of 72- Easy way to calculate compound interest problems in your head

Have you always wanted to be able to do compound interest problems in your head? Probably not, unless you’re a mathematician , but it’s a very useful skill to have because it gives you a lightning fast benchmark to determine how good (or not so good) a potential investment is likely to be.

The rule says that to find the number of years required to double your money at a given interest rate, you just divide the interest rate into 72. For example, if you want to know how long it will take to double your money at eight percent interest, divide 8 into 72 and get 9 years.

The “rule” is remarkably accurate, as long as the interest rate is less than about twenty percent; at higher rates the error starts to become significant.

You can also run it backwards: if you want to double your money in six years, just divide 6 into 72 to find that it will require an interest rate of about 12 percent.

For more info on this ‘rule’ visit moneychimp.com

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