Calculating Interest With the Rule of 72
by Raymond Rothschild
Despite the convenience these days of computers, business calculators and the like, it is often desirable
to perform some calculations either mentally or using pencil and paper. After all, one doesn't always have
the trusty laptop readily available — if you have one at all. Toward this end, I would like to recommend
the Rule of 72 when doing certain interest evaluations.
Curiously, I was first introduced to this rule when attending a seminar on estate planning. The presenting
lawyer explained that if an amount of money was placed in a bank at compound interest until it doubled,
the interest rate times the number of years would approximately equal 72. He dubbed this phenomenon
"The Rule of 72."
Despite my interest in mathematical tidbits, I had never heard of this relationship before. Was this rule
some quirk of nature, like Fibonacci numbers? Intrigued, I decided to investigate this premise using
mathematical techniques. The algebraic calculations involved are shown in the sidebar, "Derivation of
the Rule of 72."