In today’s Money Market accounts it takes 72 years for money to double

By Dian Vujovich

There are plenty of reasons not to like financial institutions these days. In addition to taking little responsibility for pushing products not fit for investors, homeowners and home wannabe owners, yields they currently offer on savings vehicles—specifically money market and/or savings accounts—are despicable. In fact, down right laughable.

Here’s what I mean:

One of the most popular sections in a book I wrote in the 1990’s, “Straight Talk About Investing for Your Retirement “(McGraw-Hill ,1995), had a section regarding The Rule of 72. It’s an investing tool rule that helps you figure out how long it would take for money to double given a particular interest rate. (The formula can also show how many years must pass for a specific dollar amount to lose half of its value, too.)

Looking only at the how-long-to-double side, The Rule of 72 works like this: Simply divide an interest rate into 72. (Or, the number 72 by an interest rate figure.) For instance, if you had $10,000 sitting in a money market account earning 6 percent a year, it would take 12 years  for that 10 grand to turn into 20 G’s (72 divided by 6 (the interest rate) = 12 years).

The rule is a nifty, helpful and educational one for anyone who wants  to plan ahead.

Apply The Rule of 72 in today’s low interest rate environment—a quick Google search shows money market rates range from considerably less than 1 percent  (Ally Bank is offering 0.84 percent) to a smidgen more (1.01 percent at EverBank)—-and the result you’ll get might bring you to your knees: Using a 1 percent return, it would take 72 years for your money to double! In other words, $1,000 today would grow to $2000 in 72 years: One-million into two-million  in 72 years as well. That would be 2085. That’s the laughable part.

It’s also the sad part. Sad because at these low rates anyone who wants his or her money to grow conservatively isn’t seeing any money growth. Which, in turn, translates to less money for millions who chose not to invest in places like the stock market.

There will be those who argue that this low interest rate environment is serving the economy well and that the housing market is taking off because of it.

At the same time this low interest rate environment it quite likely hurting more people than it is serving. Like those who don’t have good credit or enough money for a down payment—now around 20 percent of purchase price, those nearing retirement wanting to save more rather than invest more, seniors living on fixed income, savers afraid of the stock market and anyone else who doesn’t have money to lose. Let’s see, that could be something like 47 percent of the population.