How Much Interest on 1 Million Dollars Could I Make? (2024) (2024)

The quick answer is that you could make as high $55,000 in pre-tax interest a year on $1,000,000 if you were to invest it in a 1-year Certificate of Deposit (CD). On a monthly basis, this means that the interest income on $1 million would be $4,583. This works out to $1,057 of interest per week, or $150 of interest per day.

Interestingly enough, because the yield curve is currently inverted, you can get a high interest rate even on shorter-term CDs. Normally, you would only get these rates if you were in a longer term, say 5-year, CD! Surprisingly enough, even savings accounts are offering very competitive rates if you shop around.

Even theyields offered by money market fundshave increased, many savings accounts are now also offering interest rates in excess of 5%, so it’s worth researching for the best deals.

Do check out the interest income calculator below if you’re interested in seeing exactly how much interest income you can generate – whether it’s for $1 million dollars or for another amount.

Interest Income Calculator – USA

Use this calculator to see how much interest income you can generate on a pre-tax basis.

Can I live for the rest of my life on the interest of one million dollars?

Now that you know that you can earn money by just leaving it in a savings account, it is only natural to wonder whether or not you could live off of that money. Sadly, that is not likely to be the case. The $55,000 of pre-tax interest income per year is hardly sufficient to fund a reasonable lifestyle.

While putting money in a savings account is a great idea, and you can get a reasonable amount of income, there will not be enough to live off in the long run.Therefore, if you have designs on retiring on a million – unless you are no longer working for a living, it’s unlikely to sustain you, as things stand.

There are a few important points to keep in mind:

1. Interest rates can and do vary over time. So while banks may be paying a high interest rate now, there’s no guarantee that interest rate will be offered 6 months, a year, or even 5 years down the line.
2. If the current rate of inflation is higher than the interest rate, you are actually losing your purchasing power. It might seem odd, but it’s true!
3. If you want monthly interest income, you have to put your money in a high interest savings account. These accounts pay out less than CDs, so your actual interest income would be potentially even lower still.
4. If you do want the highest interest income, you have to deposit the money in CDs where your money is locked up. Therefore you would not have a set amount coming in each month. Secondly, if your money is tied up in a long-term CD (say a 5-year CD), you typically cannot access your money before the CD matures. If you do try to access that money early, there is typically a penalty.

If you are intent on living off the interest, then please do use our safe withdrawal rate calculator to help you plan out your cash flows. It helps you get a full picture based on the returns you generate, inflation, and your expenses.

However if you are in the early stages of your retirement planning and still building up your savings, check out our retirement calculator instead. It will help you get a good idea of how much money you need to save up and what kind of lifestyle you can expect based on your retirement pot.

Simply put,becoming a millionaire these daysisn’t as hallowed as it might seem – you’ll need significantly more before you can put your feet up for good. Even just the dividends off $1 million won’t be enough. Sorry! With $2 million your situation looks better, and if you had $5 million in the bank, you could definitely live off that interest income stream alone!

That said, you can make that million travel further – you just have to be careful withwhere you invest it.

How can I better ensure an income with my $1 million in the US?

As wise as it is to keep money in savings, and as capable as banks are at providing competitive interest rates on savings while protecting your capital, you will sadly not be able to live off of the interest rates from your bank account alone. It’s a clear reason why so many people choose to invest in a variety of asset classes.

We’ve got an entire article dedicated to discussing the different investment options for your $1 million, so I urge you to read that.

In summary though – there is a whole gamut of investment options – from low risk money market funds to much higher risk stock and bond funds. You can invest in real estate or in privately held businesses. You just have to be aware of the risk and opportunities of investing in each asset class prior to diving in.

Stocks and bonds rise and fall in value, unlike your bank deposit. However, invariably, they can provide a little more in the way of a potential return when measured over the long-term.

The long-term return potential on $1 million is pretty unlimited – it all depends on the types of investment you choose, whether it’s likely to be impacted by macroeconomic forces, political change, and how much you put into your chosen company or resource.

Diversification is Important

Even if you know a little bit about investing, you’ll likely have heard that diversification is important. But what does this actually mean?

Remember the phrase ‘don’t put all your eggs in one basket’? Crucially,diversifying investmentsfollows this rule. If you were to put your whole million into Tesla tomorrow, for example, and the stock took a dip, you’d lose a large chunk of money. It may not affect you until you cash out, but what if that value never bounces back? Or what if you need the cash urgently just when the stock has dipped?

Any investment – be it cash, stocks, bonds, or commodities – always carries risks. The magnitude of the risk and the potential reward always have to be assessed together. That’s why the best financial advisors refer to diversification as the key to good financial health.

ETFs and index tracking mutual funds that are considered low risk may be worth looking into if you are keen to experience the highs of the markets, but still want safety.

Unfortunately, we have no way of telling you which options are the best for your money. It’s best to talk to your advisor!

I Bonds

I wanted to specially touch on I-Bonds here as we don’t discuss them much in other sections of our website.

Series I bonds, also known as inflation-protected bonds, are low-risk investments that are backed by the US government through the Treasury Department. I bonds offer a fixed rate of interest, plus an additional rate that is based on inflation index known as the CPI-U. This means that your investment will keep pace with the cost of living, keeping your savings safe from inflation erosion. And because they’re backed by the government, you can be confident that your investment is secure.

In November 2022, the I-bonds rate was revised down to 6.89% from a high of 9.62%. As inflation moderates, in May 2023, the I-bond rate was further reduced to 4.3%. While the I-bond rate was much more attractive in comparison to bank savings rates, at this point, it’s easier to go with a high interest savings account or a CD as you can easily secure a better rate and not have any limits.

At the current I-bond rate, a million dollars invested in I-bonds at this rate would get you $43,000 in interest income alone! But as I mentioned earlier, there’s an important catch: the maximum one can invest in these I bonds is $10,000 per person annually. So if you have a family of 4, you could earn $1,720 annually. It’s great, but nothing crazy to get excited about.

What is an interest rate?

Interest is the money that is paid by the borrower to the lender. It can be thought of simplistically as the cost of borrowing money. The higher the interest rate, the higher the cost to the borrower and the higher the income to the lender. The interest rate varies based on factors such as the risk of the borrower defaulting, duration and amount of the loan, and of course broader macroeconomic factors.

When you deposit your money in the bank, you are a lender to the bank. While the money is yours, keeping your money in a savings account, certificate of deposit, or similar product, is effectively lending the money to the bank.

As a result the bank pays you for borrowing your money. By depositing your million dollars in the bank, you will accrue interest on it. When the year is up, the bank will add money to your savings account based on the agreed upon interest rate.The higher the rate, the more money you could accrue without having to lift a finger. It’s why there is often so much pressure on people to compare these rates when choosing CDs and other savings accounts!

Be warned, however, that interest rates rise and fall constantly. For example, a bank may set you up with a 6% interest rate for your first year of savings, but may drop this to as low as 3% for the year after.

Stock Market Returns Are Not Interest

The internet has a lot of misleading advice. Many articles will suggest that you can generate “interest” from investing in the stock market. Take a look at this screenshot from another website:

They claim you can make $96,352 in interest from investing in the S&P 500. This is plain wrong. Similarly, they claim a mutual fund can generate $47,804 in interest, which is also wrong.

The stock market generates returns in the form of dividends and capital gains and losses, but it never generates interest. Similarly bonds pay coupons (not interest), which can fluctuate. Additionally with bonds, there is always the risk of losing some or all of your capital if the borrower defaults. Mutual funds, which invests in stocks and/or bonds, can therefore never generate interest income for you.

The key difference between stock market returns and bank interest is that market returns fluctuate quite wildly and are never guaranteed; whereas interest income from a deposit in bank is relatively stable and in many cases can be guaranteed. Additionally, in the stock market you can lose all your capital. In a regulated bank, your odds of losing your capital is almost negligible. This is the basis of the modern financial system.

The interest you earn at a bank is on top of your deposit; and while your deposit may be locked in for a certain period of time, besides extremely rare situations when banks fail, you will never lose your capital.

What determines a bank’s interest rate in the US?

Banks around the world determine their interest rates based on a few things, but in the US, most banks tend to be led by the same common factor – theUS Federal Reserve.

This rate affects those that banks across the US that provide for both savings accounts and bank loans. Although they do not have to follow the Fed’s base rate by law, most US banks follow it, even as it rises and falls.

This makes sense – as it helps to keep bank rates and interest levels competitive. It also means that US banks are held accountable to a firm standard. If the Fed’s interest rate was much higher than a bank’s standard interest, it’s likely few would want to take advantage!

Let’s consider the current Fed funds rate. Due to the current inflationary environment and geopolitical challenges across the globe, the funds rate for the has risen to a target range of 5.25% to 5.5%. 2007 was the last time rates were this high, and it doesn’t look like the Fed is going to stop any time soon yet!

One more hike and we’ll be reaching back to 1999 in search of a prior high.

So, if you look to your bank, you will likely find that whatever rate they are offering on your savings account or bank loan will match that, or at least very closely.It’s to reflect the current economic struggles we’re all facing – with inflation on the rise, too.

To put that into an interest perspective, were you to put that $1 million into your savings account today, you will likely get an interest rate of around 5%, which works out to $50,000 of interest earned per year.

Interestingly enough, because the yield curve is currently inverted, you can get a high interest rate even on shorter-term CDs. So with a 1-year CD, you can currently get 5.5%. Normally, you would only get these rates if you were in a longer term, say 5-year, CD!

On the longer-term 5-year CD, you would earn an interest of about 4.5%, which works out to $45,000 per year. It of course depends on the exact figures of your particular bank and what offers are ongoing at the time you’re shopping around for rates.

As I outlined earlier, money market accounts are also a reasonable way to get a decent interest rate on a million dollars. These money market funds are safe as they typically invest a large proportion of their capital in well diversified portfolio of treasury bonds.

Given the moderating inflation expectations and worries about a potential recession, the Fed is expected to pause its rate-hiking cycle for the short term. However what happens further in 2023 and 2024 is an open question.

Once the yield curve stops being inverted, we will go back to the more normal situation of the 5-year CD rates being highest as depositors usually get paid the highest for locking in their money for a longer period of time.

However, that doesn’t mean you’re guaranteed to just get $55,000 on a $1 million savings pot. There are some banks, for example, that go even higher! For each extra 0.1% interest rate, you can expect an additional $1,000 in interest income over the year.

You can refer to the table below for further details, or just trying using my handy interest income calculator above.

Is it better to save your money or invest it?

Saving that $1 million in a bank is considered the safest choice – there’s no risk in your investment decreasing – you’d simply not get much return on your money in the long run.

For this reason, there is a strong argument for investing a good chunk of that $1 million in the stock market, rental properties, real estate, or other opportunities. Just base interest savings will never help you achieve your dreams of never having to work again, unless you have a lot more capital to hand in the first place.

However, by investing your money in stocks, shares, ETFs and bonds, you do run the risk of losing it all. That’s why it always pays to discuss your potential investment plans with a financial advisor before you decide upon the best course of action. It also almost certainly pays to look at different types of fund and stock – and to diversify – in case your chosen stakes go south quickly.

Ultimately the choice is yours. Do I keep my money safe, with minimum potential to grow substantially in a bank account? Or, do I invest my money either by myself, or with the help of a professional financial advisor?

Before You Go…

We’ve looked at how much interest you can generate off a million dollars and the trade-offs that come with that. Of course you could generate higher returns by looking at other options, however that of course depends entirely on what you want to do. It’s important that you have solid financial plan in place and that your asset allocation strategies are set to match your requirements.

Consider speaking to a financial advisor if you come into a significant amount of money and want to watch it grow. In fact, it is worth speaking to multiple advisors in order to get the best possible advice – build an average, overall picture of what to expect.

Our whole blog is dedicated to help you get on the path of financial freedom. Feel free to browse around and read through the articles.

In a nutshell, the fastest way to achieving financial freedom is tocut your debt,minimize unnecessary expenses, so you cansaveandinvest your money! There are plenty ofinvestment booksandpodcaststhat you can use as a learning resource along the way to help you reach your goal faster.

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by Jon Craig

I am the creator of Project Financially Free and I started this journey to both educate myself and share my insights on personal finance. I’m passionate about financial literacy and I invite you to join me on this transformative path. See more.