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How Much Interest Would $1,000,000 Yield?

[Update: This post has been updated as of December, 2008, to reflect current interest rates.]

Someone happened upon this site today by Googling “how much interest would i get if i put in $1000000 savings.” Interesting question, and as soon as I saw it, I did the math. Here’s the thing, though. You have to define “savings.” I’m going to assume the searcher meant “savings account.” But even then, are we talking regular brick-and-mortar bank savings account, or a high-yield savings account?

Let’s assume you put the money in a savings account, and took out the interest every year to live on.

$1,000,000 in a brick-and-mortar savings account, earning 0.02% a year (pretty standard), would earn only $2,000 – could you live on that?

 

$1,000,000 in a savings account earning 5% a year would yield $50,000. How about $50,000 – could you live on that?

Most banks offer an account that will pay you a higher interest rate if you keep a significant amount of money in the account – $1,000,000 certainly counts as a “significant amount.” For example, Bank of America offers a Money Market Savings Account that would pay 1.55% on $1,000,000 – thus yielding $15,500 on your cool million.

What about insurance? Well, the Bank of America account says it’s FDIC insured “to the maximum amount allowed by law.” I’m not really sure how much that is, but I do know that most online high-yield savings accounts are insured up to $250,000. Maybe you should just spread your million out between savings accounts at four different banks!

Still, the Bank of America money market account doesn’t give you as good of a rate as an online savings account: ING’s Orange Savings offers 2.75% APY on any balance – whether you’ve got $1 or $1,000,000 in there. On $1,000,000 that would be $27,500 a year – perhaps that’s a bit closer to money you can live on?

Ideally, though, if you have a million dollars, you might want to look into investing it in something a little more aggressive than a savings account, especially if you’re young and you don’t have to live off the money.

31 responses to “How Much Interest Would $1,000,000 Yield?”

  1. Jenn

    FDIC Insurance is 100% up to $100,000 on deposits. Usually when a bank goes bankrupt, however, the govt. tries to refund as much as they can beyond the initial $100,000. I really wouldn’t worry about Bank of America going bankrupt, though. It’s one of those banks that ppl call TBTF or Too Big to Fail, the govt. would most likely not let it go under in the first place b/c of how it would affect the rest of the economy.
    Anyway, if you want to know anything else about the FDIC, check out http://www.fdic.gov/deposit/deposits/insuringdeposits/index.html .

    1. monte mitchell

      This is a done deal. u.s. banks don’t pay interest on weekends. they move those funds to central American banks and collect a tidy sum for that.They then move funds back bright n’ early on Monday morn.

      those banks in Belize, Honduras, Panama for example pay a whopping 9-12%

      Mr. banker in America is a parasite on the uninformed.

      oh they have a trick up the sleeve…. fdic insured up to an amount.

      1. Peter Wolf

        So if I invest 100k in a bank in Panama I could live fairly comfortably off the interest?

        Peter

        1. Todd Rogers

          SURE you can live off a 9-12% interest yield if you call $9000-$12000 a year LIVING….!!! LOL!!!

          Also you have to think about another potentiallly upsetting reality…the possibility that you will not be able to withdraw or have sent to your other account(s) a very costly wire transfer on a monthly basis.

          Also to be considered, IMHO, is the possibility that interest paid on deposited monies, including but not limited to whatever limits the bank might place on an account’s maximum balance, would be in that country’s local currency…

          And if that is the case, then said monies would likely become beholden to the currency exchange rate between the USA and Panama; it would also go without saying that any wire transfer would also be subject to the exchange rate on the date of transfer, which could have potentially positive or negative elements.

          1. Brendon

            In this example, there would be no exchange rate because Panama uses the Balboa AKA US Dollar…

  2. New2TheRatRace

    Ya that discussion came up between myself and my coworkers. We were talking about if we won the lottery and put a chunk of it into a high yield savings and lived off the interest. One question on that tho…how much would you get taxed when you’re making that much on the interest? The actual money you get will probably be less than 50k from 5% on 1 mil. So i guess just do what you said and invest more aggressively and problem solved! =D

    -New2TheRatRace
    http://new2theratrace.blogspot.com/

  3. acidspit

    Shouldn’t you calculate the interest as a monthly compounding interest?

    I believe standard savings accounts will yield monthly interest, and the following month’s interest is calculated based on the principal + interest from previous month even if there are no additions to the principal. So shouldn’t the total interest earned at the at of the year be a little bit more?

    Also, when I calculate the interest on $1,000,000 for 0.02% (.0002) compounded monthly, I get $1,000,200.02 at the end of the year. (I get your figure of ~$2000 at the end of the year given the interest rate of .2% [.002])

    When I calculate the interest on $1,000,000 for 5% (.05) compounded monthly, I get $1,051,161.90 at the end of the year.

    I used this compound interest calculator

  4. New2TheRatRace

    I think for the 5%, she meant APY and not APR. From my understanding, APY incorporates the monthly interest you earn. So, 5% APY means you earn 5% total at the end of the year. My current Wamu savings states its 5% APY and 4.89% interest rate.

    -New2TheRatRace
    http://new2theratrace.blogspot.com/

  5. Finance Guy

    At a $1MM, two things happen:

    1) You get a much higher interest rate from banks

    and

    2) You qualify as a high networth individual, and there are financial planners who want to talk to you.

    Essentially, in both cases, you are looking at 8-10% interest rates (the difference being APR vs. APY, plus some risk).

    In terms of taxes, interest tax is your tax bracket, whereas capital gains taxes (through investments) are set @ 15%, unless you are in the bottom tow income brackets.

    So the difference between savings vs. investment after tax could be 3% vs. 7%, and that’s just one year.

    Compound that over 10 years (on APY basis), and your investment would have doubled your money, while savings is still at $1.4MM. Also, the $2MM from investments assume you cash out your investments every year. If you waited until the end of 10 years to sell your investments, it could be evenmore.

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  7. penty

    FDIC insurance wouldn’t cover any more for multiple savings accounts at the same bank.

    You would need to spread the 1 mil around to 10 different banks (100,000 at each).

  8. ryan

    probably about 10 million times more likely the bank will fail before you win the lottery. so keep buying those tickets, sucka

  9. Eddie

    Ya know,peaple that rag on the lottery are right up to a point.If you spend alot on the lottery you are a sucka but a little is worth it.
    I never played 9 yrs ago my co-worker won 10mil 5 yrs ago I got 5 out of 6 #’s on a 15mil pot,so you never know.

  10. DeeOhGee

    Finance Guy is wrong, you do NOT get a “much higher rate” from the banks because you have $1mil. You get preferential treatment along with possibly a slightly higher rate, but not much more.

    Also, a couple can get $300,000 FDIC protection with one bank by having 3 separate accounts, one in each name and one joint account, each one fully protected.

  11. Wayne Smith

    In this current situation, Does no one out there find it sad that the bank is making 16% of the money we the people place inside it and we the people only get 2% interest from the bank? Something is truly wrong with this system.

  12. Jah

    You will make the biggest mistake to bank with Bank of America.

    This bank will rip you off big time. Check this link out.

    http://www.google.com/search?q=Bank+of+America+Class+Action+Lawsuit&sourceid=navclient-ff&ie=UTF-8&rlz=1B3GGGL_enUS274

  13. Mona Cleglachlan

    In tough times like today, if you have about $700,000-800,000, what’s the best and SAFEST (100% RISK FREE) way to invest it so that it would yield a decent reutrn to live on. Lets say about, the returns being along the lines of $3,500-5,000 a month ?

    Any ideas ? Please share.

    Thanks.
    Mona.

  14. James

    What about CD’s. Don’t they draw alot of interest?

  15. jeff

    I would invest it through amortized loans . on sites like prosper. thats what banks do. just become the banker.

  16. M Dolores Harper Morgan

    I want to win your 1000000.00 and 5000 for life. How do I do this. Thank you Dolores

  17. MW

    I would use it for grands college tuition.

  18. Art Mann

    I guess the lesson is try to get more than a million in the bank. it’s a dream for most but you can do it.

  19. saifuzzaman

    I want to win your 1000000.00 and 5000 for life. How do I do this. Thank you Dolores

  20. Lynda Wyatt

    @Todd, maybe you can’t live off $9,000 a year in the US. It might cost a lot for wire transfers but that money would go far if you were living in Panama or Belize and you could get a higher standard of living.

    On that subject, ICICI Bank in India offers up to 10% interest and you would have a hard time spending the interest living it up in Goa or in Kerala.

    In regards to the original post, I agree that living off the interest initially is a good idea. As you get older though, what’s the point of having $1M if you aren’t getting maximum enjoyment from it.. I think when I reached 45 years old I’d start spending it all and living the high life!

  21. Haroun Kola

    My goal is to have $100,000 in a fx trading account, learn to trade successfully and earn 5% growth every month.

  22. Some one who works in a bank

    $1M will give you $42G per year minus $12G tax = $30G. Do you want to live off the interest? How much money do you want a month? Divide the monthly amount you want by $2,500 and you will get how many million you need to invest to yield your desired amount. Say you want $4,000 dollars a month, then 4000/2500=1.6 that is 1.6 million. Yes that includes taxes. So after taxes you get $4000 a month every month with 1.6 million in the bank approximatelly. The highest anount of money I have seen in a savings account is about $800,000 which is less than 1M. Maybe rich people invest in other types of banks or stocks.

  23. John Idyu

    If you won $659M US MegaMillion jackpot, how would you invest, spend, save that lot of half a billion.