What is the Rule of 72?

The Rule of 72 is a simple mathematical shortcut used to estimate how long it will take for an investment to double in value at a fixed annual rate of return. By dividing 72 by the annual interest rate, you get an approximate number of years required to double your money.

The Formula

Examples of the Rule of 72

• At 6% interest: 72 / 6 = 12 years to double your money
• At 8% interest: 72 / 8 = 9 years to double your money
• At 10% interest: 72 / 10 = 7.2 years to double your money
• At 12% interest: 72 / 12 = 6 years to double your money

Why 72?

The number 72 is used because it provides a close approximation for compound interest rates between 6% and 10%, which are common for many investments. The rule works because 72 has many divisors (1, 2, 3, 4, 6, 8, 9, 12, etc.), making mental calculations easier.

Accuracy of the Rule

The Rule of 72 is most accurate for interest rates between 6% and 10%. For rates outside this range:

• For lower rates (below 6%), use the Rule of 70
• For higher rates (above 10%), use the Rule of 73 or 74

Applications Beyond Investing

• Inflation: Estimate how long for prices to double at a given inflation rate
• GDP Growth: Calculate when an economy will double in size
• Population Growth: Determine doubling time for population
• Debt: Understand how quickly debt can grow if unpaid