What is the Rule of 72?
The Rule of 72 is a simple shortcut for estimating how fast something that grows by a fixed percent will double. It’s mostly used for money, but it also works for anything that grows (or shrinks) by a steady percentage each year.
When your money earns interest, it can earn interest on the interest. That’s called compound growth—and it makes things grow faster over time.
The Rule of 72 lets you skip the complicated compound-interest math and do a quick estimate:
Years to double ≈ 72 ÷ growth rate (%)
It Answers Questions Like:
“If my investment grows at 8% a year, how long until it doubles?”
Simple! 74 ÷ 8 = 9.25 Hurray! Your investment will double in 9 years, 3 months.
“If inflation is 4% a year, how long until prices double?”
Just as simple (but much less happy)! 74 ÷ 4 = 18.5 Prices will double in 18 years, 6 months.
It’s not exact, but it’s close enough for quick planning and decision-making.
The Idea
Years to double an investment = 72 ÷ (annual growth rate in %).
Flip it around to get the rate you need: Rate to double in N years = 72 ÷ N.
Analogy
Think of your money like a snowball rolling down a hill. The steeper the hill (higher %), the fewer hills it needs to roll down before it’s twice as big.
Why It Matters
It’s a fast way to:
- Predict how long savings or investments might take to double
- See how fast debt can double if ignored
- Grasp how quickly inflation can cut your buying power in half
How It Works
- Use the annual percentage rate (APR, APY, “expected return”)
- Do 72 ÷ rate for an estimate of years
- Works best for rates around 3% to 12% and compound growth
Step-By-Step To Implement
1. Find your rate.
o Savings accounts show APY/interest in your banking app.
o Funds/ETFs list an “expense ratio/MER”; that’s a fee.
2. Adjust for fees (and taxes if you want to be precise).
o Example: 7% return with a 1% fee → 6% net.
3. Calculate: Years = 72 ÷ net rate.
4. (Optional) For buying power: subtract inflation first.
o Example: 7% return − 3% inflation ≈ 4% real → 72 ÷ 4 = 18 years to double purchasing power.
5. For debt: plug in the card/loan rate to see how scary fast it grows if unpaid.
Worked Examples
• Savings at 4%: 72 ÷ 4 = 18 years to double.
• High-interest savings at 4.5%: 72 ÷ 4.5 = 16 years exactly.
• Broad index fund estimate at 7%: 72 ÷ 7 = 10.29 years (about 10 years and 3 months).
• TFSA/ROTH-style goal at 8%: 72 ÷ 8 = 9 years to double.
• Inflation at 3%: 72 ÷ 3 = 24 years for prices to double (your money’s buying power halves).
• Credit card at 20%: 72 ÷ 20 = 3.6 years (about 3 years 7 months) for debt to double if you only let interest pile up.
• Rate needed to double in 5 years: 72 ÷ 5 = 14.4% per year (tells you that a 5-year double requires very high, risky returns).
Common Mistakes
• Ignoring fees: 7% → 6% after a 1% fee changes doubling time from ~10.3 years to 12 years - nearly 1 year 9 months slower.
• Using it for wild rates: At very high or very low rates, accuracy drops.
• Forgetting inflation: Your account can double, but your buying power may not.
• Mixing simple and compound interest: Rule of 72 assumes compound growth.
• Changing rates: It’s a snapshot, not a guarantee; real-world rates move.
1-Minute Action
• Pick one real number you have (a savings rate, a fund’s expected return, your card APR, or last year’s inflation).
• Do 72 ÷ that number on your phone.
• Write the result next to that account (e.g., “At 4.5%, doubles in ~16 yrs”). Tiny note, big awareness shift.
Words to Know
- Interest rate/return: The % your money grows by each year
- Compound: You earn money on your money and on past gains
- APY/APR: Annual % for growth (APY) or cost of borrowing (APR)
- Inflation: Prices rising over time; buying power falls
- Expense ratio/MER: Yearly % fee on a fund/ETF
- Real return: Return after subtracting inflation
Nerd Bonus
For super-precise math folks: using 69.3 (continuous compounding) or 70 can be a hair more accurate at some rates, but 72 is easy to divide (2,3,4,6,8,9,12), which is why it’s the classic.
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I'm Christopher
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