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To have saved or earned $1 million is admirable, but “a million” is just a big number rather than a comprehensible amount of money. What can you actually do with it in the short or long term? The first decision you need to make is to either spend the money, set up a million-dollar bank account or turn the money into an asset, such as an investment.
The first choice is tempting, but the last can provide significant long-lasting income earned per year. If it’s put to work, money will earn more money, in the form of compounding interest. When carefully managed, a nice financial snowball begins rolling downhill.
How To Calculate the Yearly Interest on $1 Million
How much interest does $1 million make per year? Forbes reports that, on average, investors can expect about a 10% annual return on the — that’s $100,000 per year, provided you reinvest at least some of the dividends.
However, your return depends on several different factors. Your time horizon, the type of investment you make and the risk associated with that investment will all affect the interest earned on your million-dollar bank account. Here are some of the ways you can build interest on your $1 million and how much you might earn:
- Savings accounts
- Mutual funds
- U.S. Treasury investments
- Municipal bonds
- Corporate bonds
1. Savings Accounts
A savings account, money market account or certificate of deposit is probably the safest place to put $1 million to work. These accounts are protected by the Federal Deposit Insurance Corporation, or FDIC in most financial institutions which covers your investment up to $250,000.
- Certificates of deposit: Higher interest rates paid on a CD or other time account can run about 3.5% to 5%. 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.
- High-yield savings: The average savings account interest rate, according to the FDIC, is just 0.47% — just $4,700 annually for a $1 million balance — but high-yield savings accounts offer rates around 3% to 4%, with a yield of $30,000 to $40,000 per year.
2. Mutual Funds
If you were to factor in that the average return for a mutual fund is around 4.67%, a simple calculation for the interest earned would be to multiply $1 million by 4.67%. This means you would get $46,700 in interest per year with that amount of money at that rate. This is a solid retirement income option as it is less risky than other types of investments.
3. US Treasury Investments
A relatively safe parking place for that cool million would be U.S. government debt, in the form of Treasury bonds, bills or notes. The amount of interest returned on these investments varies. For example, if 10-year Treasuries yielded 3.82%, as it did on average last year, this would mean you would earn $38,200 a year for a $1 million investment. A 30-year T-bond yielding 3.93% would pay $39,300 annually.
Although not guaranteed, U.S. government debt is considered among the safest investments you can make. The debt is backed by federal taxes and other government income.
4. Municipal Bonds
A step up the yield ladder would be state and municipal bonds. These are debts issued by public agencies, for operating and other expenses. The bonds are backed by the local taxes and fees raised by the issuers. Since they’re considered a bit riskier than Treasuries, they generally pay a higher rate of interest.
Here are a few key takeaways:
- It’s important to note that municipal bonds are free of federal income tax on the interest. In many states, they are also free of state income tax for residents.
- This makes “munis” an attractive investment for those in higher tax brackets.
- If you earned an interest rate of 3.65%, a $1 million investment in a 30-year muni would pay interest of $36,500 annually.
5. Corporate Bonds
Corporate bonds are debts of private companies. Bonds vary greatly in safety and return to the investor. A large company with rock-solid financials will pay a relatively low rate of interest to borrow money. Smaller and riskier companies have to pay more, so their bonds yield a higher rate.
It’s important to gauge safety and risk in the corporate bond market. Corporate bonds are rated by three big rating agencies: Moody’s, Fitch and Standard and Poor’s. The agencies assign their ratings on a letter scale, with AAA being the safest and C the riskiest.
The interest yield on corporate bonds varies with their price, which fluctuates with supply and demand. As the price of a bond falls, its yield rises. If the price of a bond rises, its interest yield will fall.
Can You Live Off the Interest of $1 Million?
Depending on your lifestyle and your choice of investments, it is possible to live off of $1 million. A reasonable annual return of 7% would bring in an annual income of $70,000. In most parts of the country, that’s enough for a comfortable home and necessities: food, utilities, auto expenses and the like. But to achieve that return, you’ll also have to accept some investment risk — and understand that your interest income might not be steady.
Final Take To GO
The first step in the process is to assess your risk tolerance and consider your age and goals. Call a financial advisor to go over your portfolio, assets, and the like. Many people can go it alone, but hiring a money manager might also be a good option. Make sure to do the math before you invest, as if done correctly, you can figure out if you can live off the interest earned on investing $1 million alone.
Thomas Streissguth contributed to the reporting for this article.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- Forbes Advisor. 2022. "Average Stock Market Return."
- Federal Deposit Insurance Corporation. 2022. "National Rates and Rate Caps."
- Bloomberg. "United States Rates & Bonds."
- Federal Deposit Insurance Corporation. "JOINT ACCOUNTS."
- Federal Deposit Insurance Corporation. "Deposit Insurance."
- YCharts. 2022. "Moody's Seasoned Aaa Corporate Bond Yield."
- TreasuryDirect. "EE bonds."
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