The Rule of 72
The Rule of 72 is a mental math shortcut for estimating how long it takes to double your money with compound interest. Simply divide 72 by your annual return rate. At 8% return, money doubles in 9 years (72 ÷ 8 = 9). At 6%, it takes 12 years. This quick calculation helps evaluate investments and understand compound growth power without complex formulas.
The rule works remarkably well for rates between 4-12%, with small errors outside that range. It's derived from logarithmic properties of compound interest but simplified for easy calculation. For example, $10,000 at 8% actually doubles to $20,000 in 9.01 years - very close to the Rule of 72's estimate of 9 years. This accuracy makes it perfect for quick planning.
Use the Rule of 72 to compare investments, understand inflation impact, or plan wealth building. If inflation runs 3%, purchasing power halves in 24 years (72 ÷ 3). If your investment returns 9%, money doubles every 8 years - meaning $10,000 becomes $20,000 in 8 years, $40,000 in 16 years, and $80,000 in 24 years. This exponential growth demonstrates why starting early and achieving good returns matters tremendously.
Quick Tips
- Always compare APR, not just interest rates
- Use the Rule of 72 to estimate doubling time
- Extra payments dramatically reduce total interest
Frequently Asked Questions
Very accurate for rates 4-12%. At 8%, it's nearly perfect. At very high or very low rates, use Rule of 69.3 (natural log of 2) for more precision. For quick estimates, Rule of 72 is excellent.
Yes - it shows how fast debt doubles if unpaid. Credit card at 18% APR doubles debt in 4 years (72 ÷ 18) if you only make minimum payments. This illustrates the danger of high-interest debt.
Rule of 69.3 is most accurate (based on ln(2)), but harder to calculate mentally. Rule of 70 works well for continuous compounding. Rule of 72 is best for practical use because 72 has many divisors (2,3,4,6,8,9,12).
The rule assumes annual compounding. With daily compounding, results are slightly faster but the difference is minimal for estimation purposes. The rule is most useful for ballpark figures, not precise calculations.
Yes, use the Rule of 114 (divide 114 by interest rate). At 8%, money triples in about 14.25 years. For quadrupling, use Rule of 144. However, these are less well-known and slightly less accurate than Rule of 72.