Rule of 72

Investments

The Rule of 72 is a quick mental formula to estimate how many years it takes to double your money at a given interest rate. Divide 72 by the annual interest rate to get approximate doubling time. Essential for financial intuition.

In detail

Rule of 72 applications:nFD at 7%: 72/7 = 10.3 years to doublenEquity at 12%: 72/12 = 6 years to doublenEquity at 15%: 72/15 = 4.8 years to doublenInflation at 6%: 72/6 = 12 years for prices to doublennReverse rule of 72 (inflation):nYour FD doubles in 10 years at 7%. But prices also double in 12 years at 6%. Net real wealth growth is minimal.nnExtended to Rule of 114 (tripling) and Rule of 144 (quadrupling):n114/12% = 9.5 years to triplen144/12% = 12 years to quadruple

Formula

Years to double = 72 / Annual interest ratenAccurate formula: Years = ln(2) / ln(1 + rate) = 0.693 / ratenRule of 72 is accurate within 1% for rates 6-15%

Real-life example

🇮🇳 India example

Meena debates: Rs 2L in FD at 7% or equity SIP at 12%? Rule of 72:nFD: doubles in 72/7 = 10.3 years (Rs 4L in 2034)nEquity: doubles in 72/12 = 6 years (Rs 4L in 2030), doubles again in another 6 years (Rs 8L in 2036)nAt 20 years: FD Rs 2L x 2 x 1.87 = Rs 7.5L. Equity Rs 2L x 2^3.3 = Rs 24.5L. The power of 12% vs 7%.

Frequently asked questions

Why 72 and not 70 or 75? ▼

72 is chosen because it is divisible by many common interest rates (2, 3, 4, 6, 8, 9, 12), making mental arithmetic easy. The exact number would be ln(2) x 100 = 69.3. Rule of 70 is equally valid but 72 gives better round number answers for common rates.