Compound Interest & The Rule of 72

Compound Interest

Compound interest is used as a long term solution to making money. It is a concept based on interest buliding upon interest, making profits larger with every year. Regular yearly interests works buying adding a percentage of the starting amount every year. Compound interest applies the interests each year not only towards the starting value, but the starting value plus the added interest of that year. For example, a compound interest would be: A starting amount of $10 with a yearly compound interest of 10%. The first year, the amount would be $10 plus $1, as $1 is 10% of $10. The second year, instead of adding 10% of $10, you add 10% 0f $11, as $11 was the total of the last amount plus interest.

Rule of 72

The rule of 72 is a method used to see how much time, or what percentage of interest it takes to double your investment. The rule uses an equation to determine the results.
For example, if you were to invest a $100 with compounding interest at 9% per year, the rule of 72 gives you 72/9 = 8. 8 being the amount of years needed to complile $200.