What Is Rule of 72? Meaning & Example
Definition
The Rule of 72 is a shortcut to estimate how long money takes to double: divide 72 by the annual return percentage. It is an approximation, most accurate for moderate rates.
Related terms
Compound interest is interest earned on both your original money and the interest already added to it. Over long periods it can make savings grow much faster than simple interest.
APY (Annual Percentage Yield)APY is the yearly return on savings including the effect of compounding. It is useful for comparing savings accounts and CDs.
InflationInflation is the general rise in prices across an economy over time, which reduces what each unit of money can buy. Moderate inflation is normal, while high inflation erodes savings quickly.
What is Rule of 72?
The Rule of 72 is a shortcut to estimate how long money takes to double: divide 72 by the annual return percentage. It is an approximation, most accurate for moderate rates.
Can you give an example of Rule of 72?
At an 8% annual return, money roughly doubles in about 9 years, since 72 divided by 8 is 9.