How the Rule of 72 Shortcut Works
The Rule of 72 is one of the most famous mental math formulas in finance. It gives an immediate estimate of compounding speed without needing scientific calculators.
The Formula
Years to Double = 72 / Annual Interest RateFor example, at an 8% annual return rate, 72 / 8 = 9 Years to turn $10,000 into $20,000.
Frequently Asked Questions (FAQ)
What is the Rule of 72?
The Rule of 72 is a quick financial shortcut used to estimate the number of years required to double an investment. You simply divide 72 by your annual rate of return.
How accurate is the Rule of 72?
The Rule of 72 is remarkably accurate for interest rates between 6% and 10%. For very high rates (e.g. above 20%), exact logarithmic formulas provide greater precision.
How long does it take to double money at 12% return?
Using Rule of 72: 72 / 12 = 6 Years. Your money will double every 6 years at a 12% CAGR return.