A million dollars is a lot of money. For most people, they believe that amount of cash will be a life changing ticket to easy street. But, have you ever considered how much interest 1 million dollars could earn each year? The amount depends on the type of investment you have. And, based on your lifestyle the interest may or may not cover your expense. So, how much interest does a million dollars earn year? Could you live off it?
Most people miss this, but a great way to invest one million dollars is through bonds. Depending on the amount of risk and length of the bond, you’re looking at between 1.19% and 4.63% percent interest payments. So, on a million dollars you’d get between $11,900 and $46,300 per year. A good choice for investors who want safety are treasury bonds. The current rate for a 30 year US Treasury bond is 3.43%. This means you would get $34,300 from the one million dollars each year. That isn’t bad, but its not great. Let’s see how much you can get by investing in some alternatives.
A regular savings account currently pays just .01% interest. If you decided to put your money in a regular savings account from a bank such as Bank of America or Chase, you could expect to earn only one thousand dollars each year. That is basically a waste of time – money market funds and certificates of deposit pay more interest.
Money Market Funds
Money market funds pay between 0.64 and 1.0% interest. One million dollars invested in a money market fund would give you between $6,400 and $10,000 annually. Better than a savings account, but still not as good as bonds.
Certificates of Deposit
Certificates of deposit typically pay more than savings accounts – although not much more. The interest rate on certificates of deposit is between 1.40 and 2.85% interest. So if you put a million bucks into this asset class you’d have $14,000 to $28,500 in annual interest payments. This is still better than a money market and savings account, but not as good as bonds.
To recap, here is what you’re looking at in terms of interest rates:
Bonds: 1.19 – 4.63%
Savings Accounts: .01%
Money Market Funds: 0.64 – 1.00%
Certificates of Deposit: 1.40 – 2.85%
Of course, if you actually have a million dollars, you’ll almost certainly want to negotiate a higher interest rate for your funds. Certificates of deposit, bonds and savings accounts have less flexibility as their rates are constrained by law. You’ll probably have better luck with a money market deposits as banks have more flexibility with these products.
Can you live off the interest?
Q: How much interest does a million dollars earn you per year?
A: Between $1,000 and $46,300, depending on how you invest it.
Under current interest rate considerations, bonds are your best bet. That said, for many people, even the maximum amount that bonds will pay per year – $46,300 – is not enough to live off of. This is especially the case factoring in inflation and taxes. Putting a million dollars in a regular savings account shouldn’t even be an option. You can make an extra thousand each year by selling things on Craigslist – so the bank account option doesn’t make much sense.
So, if you ask the question, how much interest does a million dollars earn per year and you don’t like the answer, you could speak with a financial advisor to figure out some of the other options that are out there. Stocks and mutual funds are a couple of other choices that you can consider. You want to make sure that you are comfortable with where your money is going, so consider consulting a professional.
Some people may choose not to work anymore if they can find a way to grow the million. That decision will come down to a couple of things.
You have to consider your expenses. Your housing, food, bills, healthcare, and taxes should all be included. For many people, the interest on one million dollars is just not enough to live on. You will still need some more income coming in. You’ll need to be aware of your expenses and have at least a rough budget drawn up.
We live in a very unpredictable world. Right now the economy is doing well, but the future is difficult to see – an economic crisis like 2008 could happen again. The advantage of interest bearing investment is they tend to be less risky than other assets like stocks or real estate. As you’ve read, the amount that one million dollars can earn from interest can fluctuate. So if you want to live off the interest on a million bucks, you may need to look beyond investments that just generate interest and consider choices like stocks or mutual funds.
This posting has been sponsored by EHL, the leading Conveyancing Solicitors in the UK – for all your real estate needs in the United Kingdom.
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