What is the rule of 72?

The Rule of 72 is a quick, useful formula that is popularly used to estimate the number of years required to double the invested money at a given annual rate of return.

Key Points :

The rule of 72 only works with Compounding effect.
The Rule of 72 is a simplified way to estimate the doubling of an investment's value, based on a logarithmic formula.
The Rule of 72 can be applied to investments, inflation or anything that grows, such as GDP or population.
The formula is useful for understanding the effect of compound interest.

The Formula for the Rule of 72 Is

72/Rate of Interest = Years to double the investment.

Let's understand with an example. Let say I want to invest 1000 rupee with an annual compound interest @8% then my investment will become 2000 rupee in 9 years.

72/8 = 9

I want to invest 1000 rupee with an annual compound interest @12% then my investment will become 2000 rupee in 6 years.

72/12 = 6.

This is how you can calculate compound interest calculations easily at least for factor of 72.

3% will take 24 years to double the money.

4% will take 18 years

6% will take 12 years
8% will take 9 years
9% will take 8 years
12% will take 6 years and so on...

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