How to Use the Rule of 72 to Estimate Interest Growth

The Rule of 72 is a quick and simple formula used to estimate how long it takes for an investment to double in value based on a fixed annual interest rate. This guide will explain how to use the Rule of 72 effectively.

Step 1: Understand the Rule of 72 Formula

The formula for estimating the doubling time is:

Years to Double = 72 ÷ Interest Rate

Where:

• 72 is a constant value used for approximation.
• Interest Rate is the annual rate of return (expressed as a percentage, not a decimal).

Step 2: Identify the Given Values

To apply the Rule of 72, you need to know the annual interest rate. For example:

Interest Rate = 6% per year

Step 3: Apply the Formula

Using the example above:

Years to Double = 72 ÷ 6
Years to Double = 12

This means that at an annual interest rate of 6%, an investment will take approximately 12 years to double.

Step 4: Interpret the Results

The Rule of 72 provides a close approximation, but actual growth may vary depending on compounding frequency and other factors.

For comparison:

• At 8% interest, doubling time = 72 ÷ 8 = 9 years
• At 12% interest, doubling time = 72 ÷ 12 = 6 years

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