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Personal FinanceUpdated May 02, 2023
Written byJeff Gitlen, CEPF®
Written byJeff Gitlen, CEPF®
Expertise:Student loans, personal loans, home loans, insurance, credit cards
Jeff Gitlen, CEPF®, is the director of content operations at LendEDU. He graduated from the Alfred Lerner College of Business and Economics at the University of Delaware.
Learn more about Jeff Gitlen, CEPF®
“If only I had a million dollars in the bank.” Who hasn’t pondered that at one time or another? But have you ever wondered how much interest one million dollars earns per year?
Interest rates on savings vehicles are currently still pretty low, according to the Federal Deposit Insurance Corporation (FDIC). As of February 3rd 2021, the average rate nationally on savings accounts is 0.05% APY and 0.06% APY for jumbo ($100,000 deposit or more) money market accounts.
Scroll down to see how much interest you might generate with various savings vehicles.
On this page:
- Interest from Investing in the Stock Market
- Interest from High-Interest Savings Accounts
- Interest from Savings Accounts
- Interest from Certificate of Deposit (CD)
- Interest from Treasury Savings Bond
Interest on a Million Dollars: Various Savings Vehicles
Investing in the Stock Market
There are many ways to invest in the stock market. You can pick individual stocks, invest in a diversified portfolio through an ETF or mutual fund, or passively invest your money through a robo-advisor.
According to Investopedia, the average annual return from the S&P 500 since its inception has been around 10%. So, if you invested your $1,000,000, it would generate $100,000 in interest in the first year ($1,000,000 X 0.10 = $100,000). If you let it compound annually for 10 years, you would generate $1,593,742 in returns for a total of over $2,1593,742.
High-Interest Savings Accounts
The advent of online-only banking has created an entirely new field of competitive savings accounts featuring high interest rates, which are generally reserved for intermediate-term savings or emergency funds.
The absence of brick-and-mortar locations and staff to operate them have reduced the overhead costs of these banks who then pass those savings to their customers in the form of higher interest rates and low or no fees.
As an example, Chime Bank offers a high-interest savings account with an APY of 0.50%, as of February 3rd 2021. That would translate into $5,000 of interest on one million dollars after a year of monthly compounding. The 10-year earnings would be $51,140.13.
The rates on both traditional andhigh-interest savings accountsare variable, which means the rates can go up or down over time. These earnings projections are based on the initial rate, which is likely to change.
Bank Savings Accounts
Traditional savings accounts, generally reserved for short-term savings, available at banks generally yield low rates of interest. As noted above, the average rate on savings accounts as of February 3rd 2021, is 0.05% APY.
A million-dollar deposit with that APY would generate $500 of interest after one year ($1,000,000 X 0.0005 = $500). If left to compound monthly for 10 years, it would generate $5,011.27.
Certificates of Deposit
Certificates of Deposits (CDs) are time deposits that pay higher interest rates the longer the money is held on deposit. These are great if you need the money after a certain short-term time period. The money must remain on deposit for the entire length of the CD term or you will forfeit a portion of your interest earnings.
As of February 3rd, 2021, the average rate on a jumbo 24-month CD is 0.21% APY. The interest earned on this would be $4,204.41.
When the CD matures it must be rolled into another CD to continue earning interest. Generally, if you think interest rates will increase significantly in the next few years, you might be better off choosing a short-term CD (12 months or less) so it can be rolled over into a higher-yielding CD after rates have risen.
Treasury Savings Bonds
Treasury savings bonds offering fairly decent rates of interest can be purchased directlyfrom the U.S. Treasury Department. For example, the I Savings Bond currently yields 1.68%, which can be held for 30 years and redeemed without penalty after five years. The problem is the maximum purchase of Treasury savings bonds is limited to $10,000 per calendar year.
There are also other options that you may want to consider depending on the markets such as Treasury Inflation-Protected Securities (TIPS). TIPS can be purchased up to $5 million in 5-, 10-, and 30-year maturities. They can be held to maturity or sold on the open market for current market value. TIPS pay a fixed interest rate which is adjusted each year for inflation.
Final Thoughts
It is important to keep in mind that there are coupons that are paid on some bonds that trigger taxes along the way. Also, while it may be an insignificant amount of money, there are capital gains taxes that are assessed on savings and CDs.
>> Read More: How much do you need to live off interest?
FAQs
With $1,000,000 invested, you will get $46,700 per year in interest. A lot of retirees gradually shift to more stable retirement income funds. Those kinds of funds usually invest in less risky bonds and large-cap companies. They're designed to provide income and some capital growth.
Can you live off interest of $1 million dollars? ›
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.
How much interest does 1 million dollars earn per year? ›
A million-dollar bank account would earn $35,000 to $50,000 a year at that rate according to a simple compound interest calculator. Money market account: The average annual interest rate on a money market account falls between 0.01% APY and 3.45% APY, depending on your balance.
How much income will $1 million generate? ›
Saving a million dollars is a big achievement, but many Americans fear it won't be enough. One rule of thumb suggests $1 million would generate around $40,000 each year, adjusted upward for inflation. Instead of picking a figure, work out what income you might need in your old age and work backward from there.
How much interest income will 1 million generate? ›
As an example, with an interest-focused investment of R1 million, generating a return of 6.7% over 12 months will mean a return of R67 000 for the year.
How much interest would you get on 1 million in the bank? ›
Interest paid on £1 million before tax
| Interest rate | Weekly | Monthly |
|---|
| 1% | £191.78 | £833.33 |
| 2% | £383.56 | £1,666.67 |
| 3% | £575.34 | £2,500 |
| 4% | £767.12 | £3,333.33 |
2 more rowsMay 31, 2024
How long will $1 million in retirement savings last? In more than 20 U.S. states, a million-dollar nest egg can cover retirees' living expenses for at least 20 years, a new analysis shows. It's worth noting that most Americans are nowhere near having that much money socked away.
Can I retire at 60 with 500k? ›
The short answer is yes, $500,000 is enough for many retirees. The question is how that will work out for you. With an income source like Social Security, modes spending, and a bit of good luck, this is feasible. And when two people in your household get Social Security or pension income, it's even easier.
How much do I need in the bank to live off interest? ›
Many Americans need at least $1 million invested to live off interest, but it varies. Explore how to live off interest and calculate how much you need for retirement.
Can you put millions in a savings account? ›
These limits can be imposed per account or as an aggregate across all your accounts. For example, you might be capped at $1 million for a single deposit account and $3 million across all of your accounts. Depending on your bank, the limits may be higher, lower or nonexistent.
For those with a high risk tolerance, investments in stocks or real estate can provide higher income but come with greater volatility, she added. “If you have a low risk tolerance, safer investments like bonds, money markets or CDs will be more your speed,” she said.
Are you considered rich if you have $1 million dollars? ›
Someone who has $1 million in liquid assets, for instance, is usually considered to be a high net worth (HNW) individual. You might need $5 million to $10 million to qualify as having a very high net worth while it may take $30 million or more to be considered ultra-high net worth.
Can I retire at 65 if I have $1 million in a 401k and will receive $2500 monthly from Social Security? ›
Here, say that you have $1 million in a 401(k) or IRA, and expect to receive $2,500 per month in Social Security payments, a number right in the mid-range of possible benefits. Can you retire at 65? Well, it certainly depends on your standard of living. But for most people the answer is yes.
How much money do most people retire with? ›
The average retirement savings for all families is $333,940, according to the 2022 Survey of Consumer Finances. The median retirement savings for all families is $87,000.
How long can you live off the interest of 1 million dollars? ›
A recent analysis determined that a $1 million retirement nest egg may only last about 20 years depending on what state you live in. Based on this, if you retire at age 65 and live until you turn 84, $1 million will probably be enough retirement savings for you.
How much interest can I make off a million dollars? ›
With $1,000,000 invested, you will get $46,700 per year in interest. A lot of retirees gradually shift to more stable retirement income funds. Those kinds of funds usually invest in less risky bonds and large-cap companies. They're designed to provide income and some capital growth.
How much income can I expect from 1 million dollars? ›
Experts say to keep in mind that you will be taxed when taking money from your 401(k). You might also be taxed on your Social Security check, depending on other sources of significant income. If you do the math, $1 million in savings will get you about $37,000 per year after taxes.
What considered wealthy? ›
U.S. net worth percentiles provide clearer picture
According to Schwab's Modern Wealth Survey, Americans said last year that it takes an average net worth of $2.2 million to qualify a person as being wealthy. (Net worth is the sum of your assets minus your liabilities.)
What bank account do millionaires use? ›
12 private banking accounts the ultrarich use
| Institution | Best for | Minimum assets for investment |
|---|
| Axos Bank Private Client Banking | Expanded FDIC insurance | $250,000 |
| Bank of America Private Bank | Philanthropists | $3 million |
| Chase Private Client Checking | High earners | $150,000 |
| Citi Private Bank | Global financial services | $5 million |
8 more rows6 days ago
Yes, you can place $1 million in a CD account. However, it's important to note that while most banks and credit unions offer CD accounts, some may have maximum deposit limits. Before opening an account, check with your financial institution to understand their specific policies.
Many Americans need at least $1 million invested to live off interest, but it varies. Explore how to live off interest and calculate how much you need for retirement.
How to invest $1 million dollars for passive income? ›
Some of the strategies to consider when turning $1 million into passive retirement income include:
- Purchasing an annuity.
- Choosing dividend stocks.
- Buying fixed-income securities.
- Starting a business.
- Investing in real estate.
- Building a portfolio.
5% APY: With a 5% CD or high-yield savings account, your $50,000 will accumulate $2,500 in interest in one year. 5.25% APY: A 5.25% CD or high-yield savings account will bring you $2,625 in interest within a year.
How much interest does $2 million make a year? ›
A $2 million nest egg can provide $80,000 of annual income when the principal gives a return of 4%. This estimate is on the conservative side, making $80,000 a solid benchmark for retirement income with this sum of money.
