Rule of 72 - How Compound Interest Works

The rule of 72 is a mathematical concept which approximates the number of years it would take to double the principal at a constant rate of return. In finance, this rule is used to estimate how many interest periods it would take to double your initial savings or investments. To obtain the number of interest periods, divide the number 72 by the interest rate that your savings or investment is earning.

For example, how many years will it take for a $1,000 to double with an interest rate of 8% per annum?

Divide the number 72 with 8 (interest rate) and you will get the approximate number of years to double your money which is at the end of the ninth year.

However, the performance of investments fluctuates so the actual time it takes an investment to double cannot be predicted with certainty, and there is no guarantee that an investment or saving program can outpace inflation.