Glossary · UK
What is Rule of 72?
A quick mental-maths shortcut estimating how many years it takes an investment to double at a given fixed annual growth rate.
Full Definition
The Rule of 72 is a simple mental-maths shortcut for estimating how many years it takes an investment or debt to double in value at a given fixed annual compound growth rate, calculated by dividing 72 by the annual percentage rate: at 6% annual growth, for instance, money roughly doubles in 72 divided by 6, or 12 years, while at a lower 3% rate it takes roughly 24 years. The rule is an approximation rather than an exact formula, derived from the mathematics of compound interest, and is most accurate for annual rates roughly between 6% and 10%; at very low or very high rates the estimate becomes progressively less precise, though it remains close enough for quick, practical comparisons without needing a calculator. The same shortcut works equally well in reverse for debts that accrue compound interest, such as an unpaid credit card balance, illustrating how quickly a debt can grow if left unpaid at a high interest rate, and can also be applied to inflation, showing roughly how many years it takes prices (or the purchasing power lost to inflation) to double at a given inflation rate. Because it requires no calculator and gives a reasonably close estimate almost instantly, the Rule of 72 is widely used as a teaching tool and quick sense-check for the power of compounding, though anyone making an actual financial decision -- comparing specific savings accounts, investments or loans -- should use a precise compound interest calculation rather than relying on the rule alone.
How Rule of 72 is calculated
Years to double = 72 / Annual growth rate (as a whole number percentage)Worked example: At 6% annual growth, money doubles in roughly 72 / 6 = 12 years. At 4%, it takes roughly 72 / 4 = 18 years.