The Rule of 72 has likely made its way to many table conversations about money. It’s a simple, almost magical calculation that tells you how long it takes to double your investment. And you don’t need a finance degree—or even a calculator—to use it.
The formula is straightforward: take the number 72 and divide it by the annual interest rate of your investment. The result is the number of years it will take to double your money. For example, with an interest rate of 6%, 72 divided by 6 equals 12 years. That’s how long it would take for your investment to grow twofold.
The hidden power of 72
This trick isn’t just for bankers or financial advisors. It’s for anyone who’s ever wondered, How quickly will my savings grow?
Imagine you’re deciding between two savings accounts. One offers a 2% annual return, and another offers 4%. Using the Rule of 72, you quickly see that the first account will take 36 years to double your money (72 ÷ 2 = 36). The second account? Just 18 years.
The Rule of 72 becomes even more eye-opening when you think about higher returns. A stock market index fund averaging 8% annually will double your money in 9 years (72 ÷ 8 = 9). Suddenly, the power of compounding doesn’t just seem abstract—it feels tangible.
The same applies to other aspects of the world of finance. Think about inflation. If the inflation rate hovers at 3%, the Rule of 72 tells you that prices will double in 24 years (72 ÷ 3 = 24). That cup of coffee you’re enjoying for $4 today could cost $8 by then.
Credit card interest rates, which can soar to 18%, double the amount you owe in just 4 years (72 ÷ 18 = 4). It’s a sobering realization that may prevent some people from signing up for a lot of unsustainable debt.
Why Does It Work?
The Rule of 72 stems from the mathematics of exponential growth. It’s not perfect—its accuracy wobbles with very high or very low interest rates—but for rates between 4% and 15%, it’s remarkably accurate. For lower rates of returns between 2% and 5%, the Rule of 70 is more accurate (same as before, only you 70 by the interest rate). Conversely, for returns above 10%-12%, the Rule of 74 is better suited. Economists trace its origins to 15th-century merchants who marveled at the power of compounding long before financial calculators existed.
The math behind it works because doubling is linked to how percentages compound over time. The exact calculation involves logarithms, which are used in higher-level math to solve problems related to exponential growth. But the Rule of 72 skips all the complicated calculations by relying on a close approximation that works well for most realistic growth rates.
What makes this rule so appealing is its simplicity. Instead of wrestling with advanced math, you can make quick mental calculations about important financial or practical matters. It’s not perfect—if the growth rate is very low or very high, the estimate becomes less accurate—but for typical scenarios like savings accounts, investments, or inflation, it’s a surprisingly reliable guide.
It’s a great mental tool, which I personally use all the time, that lets you navigate the complexities of money and growth with ease, whether you’re comparing investment options, calculating the impact of inflation, or understanding the cost of debt.
