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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Friday, April 21, 2006

Rule of 72

The Rule of 72 explains how long it takes for money to double? It works the same way for investments as it does for debts.

All you have to do is divide 72 by the percentage rate you are earning on your investment or paying on debt.

Think about this:
You have a savings account with $10,000. It earns 4% interest from the bank. 72 divided by 4 is 18. It will take 18 years for your $10,000 to double to $20,000 if you don't make any deposits.

Here is an everyday example for debt: You have $5,000 in credit card debt. Your credit card agreement stipulates that you will be charged 18% interest. 72 divided by 18 is 4. It will take 4 years for your $1,000 debt to double to $2,000 if you did not make any payments.

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