What Is the Rule of 72?
The Rule of 72 is a simple mental math formula to estimate how long an investment takes to double. Divide 72 by the annual interest rate to get the approximate number of years. At 8% interest, money doubles in roughly 72/8 = 9 years.
How Accurate Is It?
The Rule of 72 is most accurate for rates between 6-10%. At 6%, it estimates 12.0 years (actual: 11.9). At 10%, it estimates 7.2 years (actual: 7.3). For rates below 4% or above 20%, the Rule of 69.3 or Rule of 70 may be more accurate.
Practical Applications
Use the Rule of 72 to quickly estimate: how long savings take to double, how fast inflation erodes purchasing power (at 3% inflation, prices double in 24 years), how quickly debt doubles if unpaid, or to compare investment options on the spot.