Rule of 72

The rule gives a simple mental shortcut for understanding compound growth. You divide 72 by the annual percentage rate.

For example, money growing at 8% a year will double in about 9 years, because 72 divided by 8 is 9. The exact answer is about 9.0 years, so the rule is very close. At 6%, money doubles in about 12 years; at 3%, about 24 years.

The rule also works in reverse and for inflation. To double money in 10 years, you need a return of about 7.2% a year. At 4% inflation, prices double in about 18 years, so the purchasing power of cash halves over that time.

The Rule of 72 is an approximation. It is most accurate for rates between about 6% and 10%, and less precise for very high or very low rates. Some people use 70 or 69 for better accuracy at low rates. Its value lies in showing quickly how powerful compounding is, and how costly high-interest debt can be.