The Rule of 72 Explained

The Rule of 72 is a quick mental shortcut for estimating how long it takes an investment to double: divide 72 by your annual interest rate, and the answer is roughly the number of years. It’s a simple way to see why letting money compound — and starting sooner rather than later — matters so much.

In this short video, one of our advisers walks through how the rule works, what it looks like at different balances, and why waiting is the most expensive choice of all.

Video transcript

I want to talk today a little bit about the Rule of 72. When I was younger, I would look at investments and think it didn’t make a lot of sense. Why would I want to put all my money into something earning a couple of cents on the dollar? When I looked at bank accounts and saw how little I was actually earning in return, it didn’t seem like a very good investment — I figured I’d rather have my money and spend it the way I wanted.

This prompted a conversation with my eight-year-old son about how long it actually takes to earn money on any type of investment. It got me thinking about what it really looks like when you invest, and how much you’re actually earning — compounded — at different interest rates.

It turns out there’s a really simple and pretty cool rule called the Rule of 72. The basic principle is that you take your interest rate and divide 72 by it. So if I have a 9% interest rate, 72 divided by 9 is 8. What that means is that if I have $100 invested at a 9% interest rate, I’ll have $200 at the end of eight years.

That seems like a long time when you’re looking at small amounts. But when we’re talking about larger amounts — $100,000 or $200,000 — doubling your money for doing nothing other than letting it sit there is a far better outcome than leaving it in a savings account earning next to nothing.

So what does all this mean? Like most things, the longer you wait to make the investment, the longer it takes for that money to double. Whether that’s at 6%, 9%, or 30 years out, it’s not going to get there by waiting. So don’t wait another day. Start that investment and start working toward doubling your money — making your money work for you, not the other way around. Remember, every day that you invest is another dollar in the cup.