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

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The sum of one million dollars is often tossed about as the dream figure for a retirement account. If you’ve accomplished this feat, congratulations! Many Americans come up well short. But what is the real power of having $1 million? What can you do with it?

Generally speaking, you’ll have three options once you reach the $1 million plateau: spend it, save it or invest it.

While blowing through $1 million sounds like a lot of fun, it’s not very financially responsible. Once you’ve spent it, you’ll have nothing left to fund the rest of your life.

Saving it can be a good option, especially in an era in which you can earn 5% or more on a high-yield savings account.

Investing it for the long run is the best option for building the most lifelong wealth. The longer you keep it invested, the more time you have for your interest to compound, meaning you’ll earn interest upon your interest. This can start a financial snowball that can grow dramatically over time.

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:

1. Savings accounts
2. Mutual funds
3. U.S. Treasury investments
4. Municipal bonds
5. 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 0.45% — just $4,500 annually for a $1 million balance — but high-yield savings accounts offer rates around 4% to 5%, with a yield of $40,000 to $50,000 per year.

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2. Mutual Funds

There are literally thousands of mutual funds, so the average return you receive over time can vary greatly. A short-term government bond fund, for example, might average 3% to 6% per year, while an S&P 500 index fund might post an average return closer to 10% annually. When picking a mutual fund, it’s important to match your investment objectives and risk tolerance with the fund.

Over the long run, mutual funds might provide you with $30,000 to $100,000 or more annually, depending on the success of the fund and the risk you’re willing to accept.

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 3.99%, as it did as of August 2024, this would mean you would earn $39,900 a year for a $1 million investment. A 30-year T-bond yielding 4.47% would pay $44,700 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.

As of Aug. 15, 2024, a 30-year, A-rated corporate bond paid 4.86%, translating to $48,600 in annual income on a $1 million investment.

6. Real Estate Investments

Real estate is a popular way to generate additional income. According to S&P, the average ROI on U.S. property is 8.6%, while residential properties earn an average return of 10.6%. However, actual cash flow can vary considerably. Cash flow of between 5% and 10% on a rental property is generally a good return. On a $1 million investment, this would translate to $50,000 to $100,000 in annual income.

What Is the Monthly Interest on $1,000,000

As seen above, annual interest on various investments range from about $4,500 to $100,000 or more. This translates to monthly income of between $375 and $8,333.33.

Factors Affecting Interest Earnings

Interest rates fluctuate daily based on a number of variables, from supply and demand to investor sentiment, inflation, economic strength, global geopolitics and many others. The Federal Reserve also plays a big role in the direction of interest rates, as it raises or lowers the federal funds rate in response to rising or falling levels of inflation. This, in turn, often triggers moves in the broader interest rate market.

Tax Implications

There’s an old saying in the investment world that “it’s not what you make, it’s what you keep.” Although earning a high rate of interest is the objective of any income investor, what really matters is what you actually have in your pocket after you pay the tax man. This is one of the reasons why tax-free bonds are so popular among high-income investors. If you earn $50,000 on a corporate bond but you’re in the 37% tax bracket, you only keep $31,500 — and that’s before factoring in any state or local taxes. But if you earn “less” on a tax-free municipal bond — say, $40,000 annually — you’re still much better off, as you get to keep the entire $40,000.

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.

John Csiszar and Thomas Streissguth contributed to the reporting for this article.