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4.7

The rule of 72

Divide 72 by the yearly rate to estimate how many years it takes money, debt or prices to double.

Close-up of hands stacking gold coins.
Photo: Towfiqu barbhuiya / Pexels
Area: MoneyFrom age 16Time to learn: 10 minutes

You will be able to estimate in your head how long savings, debt or prices take to double.

SafetyReal investments do not grow at a steady rate. Treat any promise of fast, guaranteed doubling as a warning sign of fraud.

Why it matters

Compound growth is hard to feel: a few percent a year sounds small, but it can double money over a working life. The rule of 72 turns any rate into a number of years you can picture. It works for savings, debt and rising prices.

How to do it

  1. Take the yearly rate as a whole number: 6% is 6.
  2. Divide 72 by it: 72 ÷ 6 = 12. Money growing at 6% a year doubles in about 12 years.
  3. Try other rates: at 8%, about 9 years; at 4%, about 18 years; at 2%, about 36 years.
  4. Use it for debt: credit card debt at 22% would roughly double in about 3 to 3.5 years if no payments were made.
  5. Use it for inflation: at 3% inflation, prices double, and cash buys half as much, in about 24 years.
  6. Run it backwards: to double money in 10 years, you need about 72 ÷ 10 = 7.2% a year.
  7. Count doublings over long periods: at 8%, $1,000 doubles about four times in 36 years, to roughly $16,000.
  8. Check your estimate with a compound interest calculator. The rule is within a few percent for rates between about 2% and 15%.

Common mistakes

  • Using a monthly rate instead of a yearly one.
  • Forgetting that fees and taxes lower your real rate.
  • Treating the answer as exact.
You can do this when …you can say, without a calculator, roughly how long money takes to double at 3%, 6% and 9%.

Sources

  1. Investor.gov (SEC): What is compound interest? (includes the Rule of 72)
  2. Investor.gov (SEC): Compound interest calculator
  3. Ontario Securities Commission, GetSmarterAboutMoney: Compound interest calculator

Sources and numbers last checked . How we check

Topic: Money basics

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