What is compound interest, and what's the 'Rule of 72'?
TL;DR: Compound interest means you earn returns not just on your original money, but on the returns it already earned — so growth accelerates over time instead of staying flat. The Rule of 72 is a quick mental-math shortcut: divide 72 by your expected annual return to estimate how many years it takes your money to double. At 12% annual returns, that's roughly 6 years (72 ÷ 12); at 6%, roughly 12 years.
Simple interest vs compound interest
Simple interest pays you a fixed amount each period based only on your original principal. Compound interest pays you based on your principal plus everything it's already earned — so each period's gain is bigger than the last, even at the same rate. Over short periods the difference looks small; over decades it's enormous.
A concrete example
| Years | $10,000 at 12% simple | $10,000 at 12% compound (monthly) |
|---|---|---|
| 10 | $22,000 | ~$33,000 |
| 20 | $34,000 | ~$107,000 |
| 30 | $46,000 | ~$348,000 |
The gap isn't linear — it widens dramatically the longer the money compounds, which is exactly why "start early" is the single most repeated piece of investing advice, and why it's actually correct rather than just a cliché.
Using the Rule of 72
- 72 ÷ 6% return ≈ 12 years to double — roughly what a conservative fixed-income mix might target.
- 72 ÷ 12% return ≈ 6 years to double — a commonly used long-run equity assumption.
- 72 ÷ 24% return ≈ 3 years — useful for sanity-checking why credit card debt at that kind of rate works so brutally against you in reverse.
It's an approximation, most accurate in the 6-10% range, but it's genuinely useful for a fast gut-check without opening a calculator.
See it compound for real
A rule of thumb is a shortcut; an actual projection with your own numbers is the real thing. Our SIP and Lumpsum calculators show the full year-by-year compounding curve, not just an end number, so you can see exactly where the acceleration happens.