In finance, the Rule of 72 is a simple but powerful method for estimating an investment’s doubling time. That is for finding out how long your investment will take to double your money. It’s based on the compound interest as opposed to the simple interest.

For e.g., if you have put your $100,000.00 into an investment. And you estimate that it will give you about 8% of the annual return rate. So, the question here is “How long it takes for making your invested $100,000.00 to be $200,000.00?” You may now intend to take out a scientific or financial calculator for getting the answer. But if you know about the Rule of 72, then you should be able to get the correct answer in just few seconds even without a calculator.

As I mentioned above, Rule of 72 is simple but powerful. So, the answer is quite strait forward, 72 / 8 = 9 years. That means you will need 9 years for making your $100,000.00 to be $200,000.00. How about when the annual return rate is 10%? Indeed, it’s even easier to get the correct answer. The answer is 72 / 10 = 7.2 years.

The following table estimates the number of years to double your money by applying Rule of 72.

Interest Rate or Return Rate(%) Number of Years to Double Your Money Type of Investment
(Example)
2 36.0 Savings
3 24.0
4 18.0 Fixed Deposit
5 14.4 EPF
6 12.0
7 10.3
8 9.0 Unit Trust
9 8.0
10 7.2
11 6.5
12 6.0
13 5.5
14 5.1
15 4.8
16 4.5
17 4.2
18 4.0

Note: The rate of Interest or Return that corresponds to each type of Investment is based on the estimation and circumstance in Malaysia.

As you can see from the table above, you need 36 years to double your money in a Saving Account!!! While Fixed Deposit account needs 18 years to do it!! This is absolutely unable to cope with the annual inflation rate. In other words, your money in Saving or Fixed Deposit Account is depreciating over the years. Hence, you should never “rent” all of your money to bank when the rates given by bank is relatively low.