The Rule of 72 is a simple calculation to determine how long it will take to double your money at a specific interest rate. For example, if your were expecting a rate of return of 7% you would divide 72 by 7, which tells you it would take about 10.3 years to double your money at that rate.
This also works the other way. If you knew you wanted to double you money in 12 years, you could divide 72 by 12, which shows you would need a 6% return to achieve this.
Not just for compound interest, the calculation could also be used to gauge the effect of inflation. For example, a 3% inflation rate would mean your money will lose half it’s spending power in 24 years. Certainly useful to know when planning your retirement!
Is the Rule of 72 accurate? No, but it’s close. While the examples above come within decimal points of the true calculation, smaller interest rates start to skew the numbers. If you where to properly calculate a compound interest of 1%, it would take just under 70 years to double, not 72. Still, not too bad for a quick calculation that dates back to the fifteenth century!