View Question
Q: Interest rate on a certificate of deposit ( Answered ,   3 Comments )
 Question
 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:
 ```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] Source: IndoIndians: 5 Money Rules http://www.indoindians.com/money/money_rules.htm Explanation: "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 http://money.msn.co.uk/MyMoney/Insight/WellHeeled/ThisWeek/doubleyourmoney/default.asp 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 ://www.google.com/search?num=100&hl=en&lr=&c2coff=1&rls=GGLD%2CGGLD%3A2004-01%2CGGLD%3Aen&q=%22double+your+money%22+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. markj-ga```
 ```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%.```
 ```I believe the exact time is 17.67 years. You can find this by calculating log(2)/log(1.04).```
 ```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 http://www.tcalc.com/tvwww.dll?Save (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).```