How Much Interest Would You Earn on a Million Dollars? (2024)

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Personal Finance

UpdatedMay 02, 2023 &nbsp | &nbsp4-min read

How Much Interest Would You Earn on a Million Dollars? (1)

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?

How Much Interest Would You Earn on a Million Dollars? (2024)

FAQs

How Much Interest Would You Earn on a Million Dollars? ›

Stocks are a popular investing choice; historically, they have delivered an average yearly return of about 10%. This means that a $1 million investment in the stock market could potentially earn you around $100,000 per year in interest.

How much interest is earned on $1 million dollars? ›

The average returns for mutual funds is 4.67%. 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.

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. But, consumer price inflation is at 6.3% during that same period. Living off the interest means your capital amount will remain relatively fixed.

How much income will $1 million generate? ›

At the current Treasury rate of 4.3%, a $1 million portfolio would generate about $43,000 per year, or roughly $3,500 per month.

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.

Can I deposit 1 million dollars in my bank account? ›

You can generally deposit as much as you'd like in most bank accounts.

Can you keep 1 million dollars in the bank? ›

The standard insurance amount provided for FDIC-insured accounts is $250,000 per depositor, per insured bank, for each account ownership category, in the event of a bank failure.

Can you live off bank interest? ›

Can you live off interest? It's possible, but it isn't realistic for everyone. Living off of interest relies on having a large enough balance invested that your regular interest earnings meet your salary needs. Rest assured that you don't need to earn a million dollar paycheck to reach your goal.

How long can I live off interest on a million dollars? ›

Around the U.S., a $1 million nest egg can cover an average of 18.9 years worth of living expenses, GoBankingRates found. But where you retire can have a profound impact on how far your money goes, ranging from as a little as 10 years in Hawaii to more than than 20 years in more than a dozen states.

How much money do you need in the bank to live off interest? ›

The painful truth is that with $80,000 in spending one would need over $8 million in retirement to live off interest alone. Since most people don't have that kind of money saved for retirement there needs to be an alternative plan.

What is a good return on $1 million dollars? ›

Stocks are a popular investing choice; historically, they have delivered an average yearly return of about 10%. This means that a $1 million investment in the stock market could potentially earn you around $100,000 per year in interest.

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 long will 1 million in 401k last? ›

Is a million dollars enough money to ensure a financially secure future? A recent analysis determined that a $1 million retirement nest egg may only last about 20 years depending on what state you live in.

How many people have $1,000,000 in retirement savings? ›

However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved.

What age can you retire with $2 million? ›

If you have multiple income streams, a detailed spending plan and keep extra expenses to a minimum, you can retire at 55 on $2 million. However, because each retiree's circ*mstances are unique, it's essential to define your income and expenses, then run the numbers to ensure retiring at 55 is realistic.

At what age can you retire with $1 million dollars? ›

Retiring at 65 with $1 million is entirely possible. Suppose you need your retirement savings to last for 15 years. Using this figure, your $1 million would provide you with just over $66,000 annually. Should you need it to last a bit longer, say 25 years, you will have $40,000 a year to play with.

How much monthly interest on 1 million? ›

Interest paid on £1 million before tax
Interest rateWeeklyMonthly
1%£191.78£833.33
2%£383.56£1,666.67
3%£575.34£2,500
4%£767.12£3,333.33
2 more rows
Mar 13, 2024

How long can you live off the interest of 1 million dollars? ›

Around the U.S., a $1 million nest egg can cover an average of 18.9 years worth of living expenses, GoBankingRates found. But where you retire can have a profound impact on how far your money goes, ranging from as a little as 10 years in Hawaii to more than than 20 years in more than a dozen states.

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.

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