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The “rule of 72”: As interest rates rise, how soon could you double your money?

The increasing interest rates that we’ve seen in the UK over the past year have helped cash savers to generate higher returns than they’ve been used to for some time. This has been welcome news for many, but if you have big savings goals, you might be wondering how soon you could double your money.

This is where the “rule of 72” comes in very handy. It’s a simple formula that can help you to get a better idea of how soon your savings could double based on your current rate of return.

So how can you use the rule of 72 to get a better understanding of your own financial future, and how could this benefit you? Read on to learn more.

The rule of 72 gives an indication of how soon your savings could double

The rule of 72 is a rule of thumb designed to help you calculate how long it might take for your investment to double. It’s important to note that it only works for compound interest, so if your account pays simple interest this won’t produce an accurate number for you.

To discover the number of years required to double your investment, simply divide 72 by the rate of return. A lower rate of return means that it will take longer for your investment to double, as shown below.

Source: Schroders. For illustrative purposes only. The rule of 72 is only an approximation. Figures take no account of additional savings that an investor might make, or the impact of inflation.

The rule of 72 is a simplified formula, designed for use in quick mental calculations rather than accurate measurements. You shouldn’t view the results of using this formula as a forecast for the returns you can expect to see.

Cash savings today could double in value in approximately 21 years

From March 2020 until December 2021, the Bank of England (BoE) base rate was at a historic low of 0.1%. The base rate provides a guide for banks to decide on the interest rates that they will offer on their cash savings. So, during this time, the interest rates on offer were extremely low.

If you had saved your money in a cash savings account offering 0.1%, according to the rule of 72, it would have taken 720 years to double in value:

  • 72 ÷ 0.1 = 720 years

In February 2023, the BoE increased the base rate to 4%. While savings interest rates haven’t quite reached that level, they have risen.

As of 16 March 2023, according to MoneySavingExpert the highest interest rate that you can get on an easy access savings account is 3.4%. A return of this rate means that you could see your money double in around 21 years:

  • 72 ÷ 3.4 = 21.176 years

Investing in stocks and shares could help you to grow your wealth more quickly

According to Forbes, the average annual return of an investment in the S&P 500 is around 10%. This is based on you reinvesting your gains rather than withdrawing them as dividends.

This means that investments in the S&P 500 could double every 7.2 years:

  • 72 ÷ 10 = 7.2 years

However, keep in mind that stock market returns can go up and down, and you could get back less than you originally invested. Past performance isn’t a reliable indicator of future performance.

As shown below, the annual return of the S&P 500 for each of the last 5 years has been quite different from the average that was reported in Forbes:

Year S&P 500 annual return
2018 -4.23%
2019 31.21%
2020 18.02%
2021 28.47%
2022 -18.01%


Source: Investopedia

So, while you may not achieve 10% returns every year, you can see how much more quickly you could potentially double your money by investing in a stock index like the S&P 500 rather than in cash savings.

The rule of 72 can help you to make sensible financial decisions

As you can see, a lower rate of return – such as the cash savings accounts at 3.4% – will mean it takes much longer to double your money. This in turn could mean that you are less likely to hit your savings goals in time.

For example, if you’re in your 50s or 60s, you may not have decades in order to double your savings and provide yourself with the lifestyle you want in retirement.

While investing in the stock market holds more risk, it also provides the potential for higher returns. The rule of 72 shows us that you could double your money more quickly when this is the case, which could help you to achieve your long-term goals sooner.

Understanding how the rate of return will affect the progress you can make on your goals could help you to choose the most suitable wrapper for your savings. This will give you more opportunities to achieve your goals in the time frame that you’ve set yourself.

Get in touch

If you’d like to know more about how you can grow your wealth and give yourself the best opportunity to achieve your long-term goals, we can help. Email us at advise-me@fosterdenovo.com  or call us on 0330 332 7866.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances. Investments do not include the same security of capital which is afforded with a deposit account. The Financial Conduct Authority does not regulate deposit accounts.

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