What is Compound Interest?
Compound Interest Rule of 72:
The Rule of 72 (often referred to as the "Law of 72") is a quick mental math shortcut used to estimate how many years it will take for an investment to double in value at a fixed annual compound interest rate. [1, 2]
The Formula
To find the doubling time, divide 72 by your annual interest rate (expressed as a whole number, not a decimal):
Common Examples:
6% Interest: 72 ÷ 6 = 12 years to double
8% Interest: 72 ÷ 8 = 9 years to double
12% Interest: 72 ÷ 12 = 6 years to double
Calculate Required Return: You can reverse the formula to find the interest rate needed to double your money by a certain deadline.
For example, to double your money in 10 years, you need an interest rate of about 7.2% (72 ÷ 10).
Inflation Impact: You can estimate how long it will take for your money's purchasing power to be cut in half by dividing 72 by the inflation rate.
Alternative Numbers: While 72 is popular because it has many divisors (2, 3, 4, 6, 8, 9, 12), SmartAsset notes that for higher precision, "70" or "69.3" are sometimes used, particularly for continuously compounded interest.
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