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'On air live telly maths secrets: the rule of 76' blog discussion
in Martin's blogs & appearances & MoneySavingExpert in the news
9 replies 2.3K views
Former_MSE_Penelope Former MSE
This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.
Read Martin's "On air live telly maths secrets: the rule of 76" Blog.
Please click reply to discuss below.
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This would show the accuracy of each rule and which is most suitable to use for different % values.
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I'm not allowed to post with links but just go to Wikipedia and search for Rule of 72
"The value 72 is a convenient choice of numerator, since it has many small divisors: 1, 2, 3, 4, 6, 8, 9, and 12. It provides a good approximation for annual compounding, and for compounding at typical rates (from 6% to 10%). The approximations are less accurate at higher interest rates.
For continuous compounding, 69 gives accurate results for any rate. This is because ln(2) is about 69.3%; see derivation below. Since daily compounding is close enough to continuous compounding, for most purposes 69, 69.3 or 70 are better than 72 for daily compounding. For lower annual rates than those above, 69.3 would also be more accurate than 72."
If you are trying to do it in your head then it looks like 72 is a pretty convenient number. That said if you are going to use the rule to try to surprise somebody about how fast their credit card debt or sub-prime loan will double then a higher number would be better (Maybe the Sub-Prime Rule of 76?)
I remember doing something similarly geeky when an accountant colleague (I'm also an accountant) mentioned the rule of 78s (http://en.wikipedia.org/wiki/Rule_of_78s). I told him the name didn't seem quite right and shouldn't it be the "Rule of n*(n+1)/2"? Oddly he just fixed me with an exasperated gaze and didn't respond.....
Edit: Beaten to it (twice!)
MrsBartolozzi - you can see the actual values on the table in my first link.
sjeapes - I assume that's the link you mean!
If you work out the values for the 'third order E-M approximation (the more accurate approximation given in the article you get the following
For the range given (1 to 50%) the approximation of %interest/3 works rather well as a way of helping decide which number to use
So the approximation would become:
(69 + %rate/3) / %rate
Can't get the table to work but the data is
Despite being told I should have gone on to do A Level maths, my division skills have always been lacking.
Yes it's exactly the same, assuming you don't withdraw anything and the rate remains constant. You'll find that for savings you probably want to use 70 or 72 though, as the rates are likely to be fairly low.
Also, although you could double your money in 14 and a bit years at 5%, it wouldn't be "worth" twice as much due to inflation.