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Q: Interest rate on a certificate of deposit ( Answered 5 out of 5 stars,   3 Comments )
Subject: Interest rate on a certificate of deposit
Category: Miscellaneous
Asked by: meanie222-ga
List Price: $2.00
Posted: 20 Feb 2005 18:17 PST
Expires: 22 Mar 2005 18:17 PST
Question ID: 477774
If you deposit $10,000 in a certificate of deposit with a fixed
interest rate of 4%. How many years will it take for you to double
your money?
Subject: Re: Interest rate on a certificate of deposit
Answered By: markj-ga on 20 Feb 2005 18:41 PST
Rated:5 out of 5 stars
meanie --

The answer is 18 years:

"f you know you need to save $8,000 and you're starting with $4,000,
you can use the rule of 72 to figure out how long it will take you at
different interest rates. IF YOU'RE CONSIDERING A 4 PERCENT CD ACCOUNT
that requires you to lock up your money for 3 months or an 8 percent
CD that requires you to lock it up for 3 years, which should you
choose? Using the rule of 72, you'll see that it will take you 9 years
to turn $4,000 into $8,000 at 8 percent interest, so locking it up for
3 years at a time will be no problem. AT 4 PERCENT, IT WOULD TAKE YOU
18 YEARS TO DOUBLE YOUR MONEY  .   .   .    ." [Capitalization added]

IndoIndians: 5 Money Rules


"The way to calculate how long it will take you to double your money
is to follow the Rule of 72. Divide 72 by the gross rate of interest
you're earning and that gives you the number of years it will take to
see a 100% return."

MSN: Money: My Money

72 divided by 4 (the annual interest rate you chose) is 18, so your
answer is that it would take 18 years to turn $10,000 into $20,000 at
4 percent annual interest.

Search Strategy:

I am familiar with the "Rule of 72," so my research consisted of
finding a source for you.  The Google search that accomplished that
was this one:

"double your money" 4 percent

I am certain that this is the information you are looking for, and I
am happy to be able to provide it for your promptly.  If anything is
unclear, please ask for clarification before rating the answer.

meanie222-ga rated this answer:5 out of 5 stars

Subject: Re: Interest rate on a certificate of deposit
From: research_help-ga on 21 Feb 2005 06:20 PST
Just a comment, the answer given is not totally accurate.  The "rule"
of 72 is more of a shortcut than a rule.  It allows you to quickly
APPROXIMATE the number of years needed to double your money, but it is
not exact.  Also the "rule" of 72 only is reasonably close when you
are in a certain range of interest rates, such as between 3 and 8%.
Subject: Re: Interest rate on a certificate of deposit
From: speedyjoe-ga on 23 Feb 2005 17:15 PST
I believe the exact time is 17.67 years.  You can find this by
calculating log(2)/log(1.04).
Subject: Re: Interest rate on a certificate of deposit
From: jack_of_few_trades-ga on 03 Mar 2005 12:07 PST
Just to back up the rule of 72...
It's suprisingly accurate for such a basic formula.  It is very simple
to execute, and here are some of it's results compared to reality:

$10,000 for each example
1.5% invested 48 years = $20,535
2% invested 36 years   = $20,532
3% invested 24 years   = $20,526
4% invested 18 years   = $20,520
6% invested 12 years   = $20,508
8% invested 9 years    = $20,495
9% invested 8 years    = $20,489
12% invested 6 years   = $20,471
18% invested 4 years   = $20,434
24% invested 3 years   = $20,399
36% invested 2 years   = $20,328

(the rule of 72 states that each of these time frames should double
the money making it about $20,000)

As you can see, the rule of 72 is quite good even for estimating
interest returns anywhere from 1.5% to 36%.  I do believe it's still
fairly accurate even beyond these rates, but the tool I was using to
verify it wouldn't go to these extremes (it will not do the math for
patial years).

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