Someone at the bank counter quotes you a rate. A relative tells you about a scheme. A headline mentions an inflation number. In each case the figure means very little on its own, and the question you actually want answered is simpler: how long before this amount becomes twice as much?
There is a piece of mental arithmetic that gets you close in about two seconds, without a calculator or a spreadsheet. It is called the Rule of 72.
What the Rule of 72 is
Take the annual rate of growth, written as a plain number rather than a percentage — 6 rather than 6%. Divide 72 by it. The answer is roughly the number of years the amount takes to double at that rate.
The rates below are chosen only to show the arithmetic. They are illustrations, not forecasts, not expected returns, and not a suggestion that anything in particular delivers them.
- At an assumed 6%: 72 ÷ 6 = 12. About twelve years to double.
- At an assumed 8%: 72 ÷ 8 = 9. About nine years.
- At an assumed 12%: 72 ÷ 12 = 6. About six years.
That is the whole rule. It works because of how compounding behaves, and 72 happens to be a convenient number to divide by — it splits cleanly by 2, 3, 4, 6, 8, 9 and 12, which is most of the rates you will ever be quoted.
It is an approximation, not a formula
This matters, because people repeat the rule as though it were exact. It is not. It is closest to correct for rates in the middle of the usual range — roughly the mid single digits to the low teens. At very low rates it slightly understates the time, and at very high rates it drifts further off.
It also assumes the rate is the same every year and that nothing is taken out along the way. That assumption is reasonable for something with a fixed contracted rate. It is not how market-linked returns behave at all, since those arrive unevenly and can be negative in any given year. Applying the rule to an assumed average return tells you what would happen if that average held steadily, which is a much weaker statement than it sounds.
Three other ways to use it
On inflation, to see the other side of the coin. If prices rise at some assumed rate, 72 divided by that rate is roughly how long before things cost twice as much — which is the same as saying the purchasing power of money sitting idle has halved. This is the use most people never think of, and it is arguably the most useful one.
On what you owe. A debt compounding at a rate doubles on exactly the same schedule. Run the rule on a credit card rate some time and see how short the answer is.
Backwards, as a plausibility check. If someone tells you their scheme doubles your money in three years, divide 72 by 3. That implies about 24% a year, every year. You now have a specific claim to be sceptical about instead of a vague feeling. This is probably the single best reason to keep the rule in your head.
What it does not tell you
The rule answers one narrow question and nothing else. It says nothing about whether a rate is achievable, nothing about the risk taken to reach it, and nothing about whether the money is safe at all. It also ignores costs and taxes, both of which come out of the pile each year and stretch the real doubling time beyond what the arithmetic suggests.
Used as a quick sanity check on a number someone has just said to you, it is genuinely handy. Used as a plan, it is not a plan.
This article is general information for education only. It is not investment advice and does not take account of your circumstances. Investments in securities are subject to market risks; please read all related documents carefully before investing.
