[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.