How to Double Your Money?

If you are wondering when your money will get doubled, an understanding of the "Rule of 72" will give you an immediate idea.

If you divide 72 by the rate of interest earned (assuming interest compounded annually), it will give you the approximate number of years it will take for your money to get doubled.

Let's understand it with a simple example. If you have put your money in an investment which will yield you 10 per cent annually, then your money will get doubled in nearly 72/10 or 7.2 years.

So if you want to reduce the time, you will have to increase the denominator - that is the rate of return from your investment. Basically, the higher the rate of return the lower will be the time taken for your money to get doubled.

The following table explains how much time it is going to take you depending on the rate of return.

Doubling money with bank deposits and saving accounts?

From the above table, it can be seen that your money in a savings account, which gives a 4 per cent return annually, will take 18 years to get doubled. And if you invest in fixed deposits which will give you slightly higher interest of 7 per cent, it will take 10 years to double your money. But remember you will have to pay a tax of 10-30 per cent on the interest earned on fixed deposits depending on the income tax bracket you fall into. So your post-tax return will be 4.9 per cent if you fall in the highest tax bracket of 30 per cent. Factoring in the tax hit, you will have to invest the money for 4.6 more years.

Want to double your money faster?

Financial planners say that equities offer the potential to double your money in much lesser time compared to a fixed deposit. But equities come with an element of higher risk. It is not rare to get 12-15 per cent return annually by investing in equities over a period of five years. So if an investment is delivering 15 per cent return on an annual basis, you can double your money in less than 5 years. However, if you don't have to take the risk of investing in stocks directly, you can invest through mutual funds which invest in a basket of stocks. Choose better performing funds and invest in them through systematic investment plans.