investing
Rule of 72
The Rule of 72 is a quick mental maths shortcut: divide 72 by an annual interest rate to estimate the number of years it takes for an investment to double.
At 6% annual return, 72 ÷ 6 = 12 years to double. At 9%, 72 ÷ 9 = 8 years. The rule is an approximation accurate to within a year for rates between 6% and 10%.
It works in reverse too: if you want to double your money in 10 years, you need 72 ÷ 10 = 7.2% annual return.
The rule also applies to inflation (how long until prices double) and debt (how long until a balance doubles at a given interest rate).
Related terms
- Compound Interest
- Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. It causes savings and investments to grow exponentially over time.
- Rate of Return
- A rate of return (RoR) is the net gain or loss of an investment over a specified period, expressed as a percentage of the initial investment.
- Time Value of Money (TVM)
- The time value of money is the principle that a dollar today is worth more than a dollar in the future because money available now can be invested to earn a return.
Frequently asked questions
What is Rule of 72?
The Rule of 72 is a quick mental maths shortcut: divide 72 by an annual interest rate to estimate the number of years it takes for an investment to double.