Skip to the content
Peabody TeachFor teachers and grown-ups

The Rule of 72 for Doubling Savings

7th grade nonfiction passage about how fast savings double: 229 words, six questions, an answer key and vocabulary.

7th grade nonfiction how fast savings double 229 words

The Rule of 72 for Doubling Savings

Suppose you put $500 into a savings account that pays interest. Interest is money the bank adds to your balance as a reward for letting it hold your funds. A natural question is how long it will take for the $500 to turn into $1,000. There is a quick way to estimate the answer without a calculator.

It is called the Rule of 72. Divide 72 by the yearly interest rate, written as a plain number, and the result is the approximate number of years it takes for money to double. If the rate is 6 percent, then 72 divided by 6 is 12, so the money doubles in about 12 years. At 8 percent, the answer is 9 years. At 4 percent, it is 18 years.

The rule works because of compound interest. Each year, the bank pays interest on the original amount and also on the interest that was added before. The balance grows by a larger amount every year, so growth speeds up over time. The estimate is not perfect, but it comes very close for ordinary rates. It also assumes that you leave the interest in the account and that the rate stays the same.

The rule teaches two lessons. A higher rate shortens the wait a great deal, and time is a powerful helper. A person who saves at 6 percent starting young can see money double several times, but only if the savings are left alone to grow.

Questions

  1. What is interest? in the text

  2. How do you use the Rule of 72? in the text

  3. About how long does money take to double at 8 percent? in the text

  4. What does compound interest mean in the passage? in the text

  5. Why does growth speed up over time with compound interest? think about it

  6. Why is the Rule of 72 only an estimate? think about it

Words to know

interest
money a bank pays you for keeping your savings there
balance
the amount of money in an account
estimate
to figure out a close but not exact answer
compound
made of more than one part, or adding on top of earlier growth
approximate
close to the exact amount but not exactly right
Share

One passage, three levels

The same topic and facts written three ways, so a mixed class can read and talk about one text. Each group’s sheet shows only a shape; the key says which is which.

● Easier · 204 words · Flesch-Kincaid grade 3.7

Say you put $500 into a savings account that pays interest. Interest is money the bank adds to your balance. It is a reward for letting the bank hold your money. How long will it take for $500 to become $1,000? There is a quick way to guess without a calculator.

It is called the Rule of 72. Divide 72 by the yearly interest rate, as a plain number. The answer is about how many years it takes for money to double. At 6 percent, 72 divided by 6 is 12. The money doubles in about 12 years. At 8 percent, it is 9 years. At 4 percent, it is 18 years.

The rule works because of compound interest. Each year the bank pays interest on the first amount. It also pays interest on the interest from before. The balance grows by more each year. So growth speeds up. The guess is not perfect. But it is close for ordinary rates. It also assumes you leave the interest in the account and the rate stays the same.

The rule gives two lessons. A higher rate makes the wait much shorter. And time is a strong helper. Someone who saves at 6 percent while young can see money double many times. But the savings must be left alone to grow.

▲ This passage · 229 words · Flesch-Kincaid grade 6.5

Suppose you put $500 into a savings account that pays interest. Interest is money the bank adds to your balance as a reward for letting it hold your funds. A natural question is how long it will take for the $500 to turn into $1,000. There is a quick way to estimate the answer without a calculator.

It is called the Rule of 72. Divide 72 by the yearly interest rate, written as a plain number, and the result is the approximate number of years it takes for money to double. If the rate is 6 percent, then 72 divided by 6 is 12, so the money doubles in about 12 years. At 8 percent, the answer is 9 years. At 4 percent, it is 18 years.

The rule works because of compound interest. Each year, the bank pays interest on the original amount and also on the interest that was added before. The balance grows by a larger amount every year, so growth speeds up over time. The estimate is not perfect, but it comes very close for ordinary rates. It also assumes that you leave the interest in the account and that the rate stays the same.

The rule teaches two lessons. A higher rate shortens the wait a great deal, and time is a powerful helper. A person who saves at 6 percent starting young can see money double several times, but only if the savings are left alone to grow.

■ Harder · 248 words · Flesch-Kincaid grade 9

Suppose that you deposit $500 into a savings account that pays interest. Interest is money that the bank adds to your balance as a reward for allowing it to hold your funds. A natural question follows: how long will it take for the $500 to grow into $1,000? Fortunately, there is a quick method for estimating the answer without reaching for a calculator.

The method is known as the Rule of 72. You divide 72 by the yearly interest rate, written as an ordinary number, and the result is the approximate number of years required for money to double. If the rate is 6 percent, then 72 divided by 6 equals 12, so the money doubles in about 12 years. At 8 percent the answer is 9 years, and at 4 percent it is 18 years.

The rule works because of compound interest. Every year, the bank pays interest on the original amount and also on all of the interest that was added in earlier years. Consequently, the balance increases by a larger amount each year, and growth accelerates as time passes. The estimate is not perfect, though it comes remarkably close for ordinary rates. It also assumes that you leave the interest in the account and that the rate remains constant.

The rule illustrates two valuable lessons. A higher rate shortens the wait dramatically, and time itself is a powerful ally. A person who begins saving at 6 percent while young can watch money double several times, but only if the savings are left undisturbed so that they can continue to grow.

Download as one PDF

How to use it

  1. Press Read it big (or B) to put the text on the projector, or Full screen (F) to fill the whole screen.
  2. Ask the questions one at a time and use Show answer when the class has decided. A shows or hides every answer.
  3. Print student copy for the class, or Print with answers for yourself.

Ideas for class

  • Before reading, put interest, balance, estimate, compound and approximate on the board with their meanings from the Words to know section and have students predict what the text will be about.
  • Read it aloud once while students follow along, then have them reread it alone or with a partner. At a calm 100 words a minute it takes about 2 minutes to read aloud.
  • Use the Read it big button (or B) to put the text on the projector, and Show answer on one question at a time so the class commits to an answer first.
  • Question 5 asks the reader to infer. Ask students to point to the words in the passage that led them to their answer.
  • Ask students to write one question the passage did not answer, then look for the answer in a book or on a classroom screen.
  • Print the student copy for independent work and keep the answer-key copy for yourself.

Related

Questions

What reading level is "The Rule of 72 for Doubling Savings"?

It was written for 7th grade. It has 229 words and works out to a Flesch-Kincaid grade level of about 6.5. That is a formula's estimate from sentence length and syllables, and it is not a Lexile or a guided reading level, so check it against your students.

What do the questions ask?

There are six. 4 ask for something the text says directly and 2 ask the reader to work something out from clues. Each has an answer in the key, and the answers are written as a teacher would accept them, not as the only possible wording.

How long does it take to read?

About 2 minutes read aloud at 100 words a minute. For a one-minute fluency check, paste it into the fluency timer and use the word count.

Can I print it?

Yes. Print student copy gives the passage, the questions with lines to write on, and the word meanings. Print with answers gives the same page with the answers filled in. Both are made in your browser.

Is this passage from a published book?

No. It was written for Peabody Teach, so there is no book to buy and no login to read it.

Nothing you do here is sent to us. No sign-in, no ads.