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An Overseas Filipino Worker (OFW) decided to invest P100,000.00 (Philippine Peso) at the age of 29. Sad to say, the closest thing to investment he knows about is saving his money in a bank.

He went to the bank and consulted the bank manager. The latter was happy to help and recommended to put his money in a time deposit account which earns interest at 4% per annum. As he needed to keep his money secure for a long time, he followed the bank manager's advice.

He returned to work abroad until he was 65. Then, planning on retiring, he went to the bank and inquired the status of his P100,000.00 in time deposit. It pleased him that his original P100,000.00 had grown to P400,000.00 just because of compounded interest. He was so happy that without his lifting a finger, his money worked hard for him. The helpful bank manager was even smiling as he approved the withdrawal. Our OFW received his money and went his way happily to retirement.

Does this sound like an investment success story? Do you agree that his money really worked hard for the OFW? What motivated the bank to add P300,000.00 to his deposit after 36 years?

You can answer the questions by first understanding how the Rule of 72 works. As previously posted, the Rule of 72 will determine how many years it will take to double your money. Just divide 72 by the applicable interest rate.

We can compute that the OFW's money will double every 18 years. (72 divided by the 4% interest rate per annum = 18 years.) After depositing his P100,000.00 at age 29, it will double to P200,000.00 at age 47. At age 65, it will further double to P400,000.00.

While our OFW worked hard in foreign land, the bank relaxes and works smarter instead of harder. They put to work his P100,000.00 by lending it at a higher interest rate or invest it in stock market, money market, government bonds, corporate bonds, and the like. In these transactions, the bank averages 12% return on the P100,000.00 deposited by the OFW. Following the Rule of 72, the money doubles every 6 years. (72 divided by 12% interest = 6 years.)

When the OFW came to the bank after 36 years to claim his P100,000.00 the bank manager was smiling widely as he handed him back his P100,000.00 plus the interest of P300,000.00 or the total amount of P400,000.00. Not surprising, considering that the bank had already made P6 million pesos using his P100,000.00! What he got were bread crumbs compared to the millions the bank already got! Now that's what some people would call highway robbery!

I'm not saying that banks really rob us or cheat us out of our money nor am I implying that bank managers are hoods preying on innocent clients. The title was just to stir up your interest and to highlight an important point. The OFW story may not be real life and may even be exaggerated but still it has real practical application.