How Much Interest on 1 Million Dollars Could I Make? (2023) (2024)

Who wants to be a millionaire…? Plenty of people, is likely to be the answer! What if you could make even more money on top of this – how much interest on US $1 million can you get?

The quick answer is that you could make as high $50,000 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 $4,167. This works out to $962 of interest per week, or $137 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. The rates there are still lower than what a 1-year CD would offer.

Before we take a closer look at these details, however, let’s consider how interest actually works in the US and how it impacts that cool million!

Interest Income Calculator – USA

What is an interest rate?

Essentially, 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.

When you deposit your money in the bank, you are a lender to the bank. As a result the bank pays you for borrowing your money. By depositing your million dollars, or indeed any amount, in a bank, you will accrue interest on it. 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.

So, when the year is up, the bank will add money to your savings account based on the 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!

The interest rate is the amount of interest that you will gain on your investment at that particular moment. Be warned, however, that interest rates rise and fall constantly. For example, a bank may set you up with a 3% interest rate for your first year of savings, but may drop this to as low as 2% for the year after.

It’s worth remembering that interest rates for banks change based on a variety of factors, so let’s dig a bit deeper into the issue.

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. A mutual fund, 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 (rarest of the rare) situations, 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 5.0% to 5.25%. 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!

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.

So, 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 4% to 4.5%, which works out to $40,000 to $45,000 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%, which works out to $50,000 per year. 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. Given the recent wave of bank failures, the Fed is expected to pause its rate-hiking cycle for the short term. What happens further in 2023 is an open question – some are speculating that rates could possibly even be cut!

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 $50,000 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.

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.

While putting money in a savings account is a great idea, and you can get a significant amount of profit (depending of course on the interest rate that your bank has set), however, 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.

First of all, banks typically only pay the interest once a year. You therefore would not have a set amount coming in each month. Secondly, if your money is tied up in a long-term 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.

Simply put,becoming a millionaireisn’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 a$100 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 stocks and shares.

Even in the financial markets, there is a whole gamut of investment options – from low risk money market funds to much higher risk stock and bond funds. 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. The 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.

Even if you know a little bit about investing in stocks and shares, 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 unless you cash out, but what if that value never bounces back?

Investing money in stocks, bonds, and commodities always carries risks. That’s why the best financial advisors and the most successful traders refer to diversification as the key to good financial health.

Tracker funds that are considered low risk, too, may be worth looking into if you are keen to experience the highs of the markets, but still want safety. ETFs, which bring together a variety of investments into viable bundles, are also appealing to those with a low-risk attitude.

Unfortunately, we have no way of telling you which stocks or commodities are likely the best for your money – it’s a wild and wonderful world out there!

I Bonds

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, $1 million 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.

Is it better to save your money or invest it?

Saving that $1 million doesn’t have to be a poor decision. In fact, it’s considered the safest choice – there’s no risk in your investment decreasing – you’d simply not get much back on your money in the long run.

This is a strong argument for investing a good chunk of that $1 million in the stock market – crucially, 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.

So, the choice is yours. Do I keep my money safe, with no 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?

Either way, that $1 million could grow larger – you just need to carefully consider your options for investing that $1 million.

Conclusion

Even with $1 million deposited in the bank, it could be better to do something with your money rather than let it sit. Of course, again, this depends entirely on what you want to do.

However, if being rich is your goal, it is important to note that the rich tend to stay this way by using their money wisely – they don’t have bottomless pits of cash to keep dipping into!

Even if you thought that the interest in your savings account could be enough to sustain you, remember that the cost of living in the US is increasing – and that interest rates can and will go up and down at any time. Therefore, banking on a slight income from a $1 million deposit might not be the best way to go, truth be told.

So, 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.

The most successful traders and wealthiest of businesspeople make their fortunes last by diversifying and actively growing their money. It’s not something you can sit back on and watch grow unless you have billions at play!

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