[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.
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 .
Peter Wolf says
So if I invest 100k in a bank in Panama I could live fairly comfortably off the interest?
Todd Rogers says
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.
In this example, there would be no exchange rate because Panama uses the Balboa AKA US Dollar…
9%-12% is $90,000-$120,000…..there’s a digit missing.
@Marco – I believe Todd’s “$9,000 – $12,000” figure was based off Peter’s question about $100,000 and not on my post about $1,000,000. But that does answer the question – if you could invest a million at 9-12% interest, yes, you could probably live comfortably off just the interest (depending on your required standard of living). But it would have to be a million dollars, not just one hundred thousand!
I believe you left a zero off your calculations. 9-12% would be $90,000 – $120,000.
INVEST 1,000,000 MILLION DOLLARS PANAMA BEACHES 100,000 ONE HUNDRED THOUSAND DOLLARS , SAVED 1 ONE YEAR
peter wolfs question was $100K deposited in Panama Not $1,000,000.00
Personally i’m Looking for a backer with $1MM, I will pay 5%apr 15yr fixed no early payoff penalty. Paying cash on a 6 unit apt with on 3 lots and I’ll divide lots into 2 lots, build a new home myself on 2nd lot and sell that house. Apt. will be rentals of 4 units at $2,500 -$3,500/mo 2 others as seasonal rentals air b&b and also rent 2 boat slips $500/mo each Location has a canal to the Gulf of Mexico and can build 3 boat slips. Let me know if anyone is interested. Or someone who can let me know who and how to get this done with private lenders.
Did you find an investor.
Lisa Wilson says
Did you find an Investor?!
Dan Murray says
Try putting $1 million in 3-12 month Treasury Bills that are earning 2.3% to 2.44%. They are about as save an investment as you can buy. A better use of the cash would be to invest in a broadly diversified index fund if your investment time horizon is more than 5-7 years. That will probably earn no less than 5%. Historically over 10%.
how stable is their dollar? you can invest overseas , but most country’s dollar losses on the US dollar and you lose as well. sorry I checked on this and it’s too risky for me. South Africa and china had best Savings account rates .
You don’t say!? Africa and China gotta look into that
Is there Any Insurance Offered in these Off Shore Accounts?,And if So what’s the Name Of the Insurance Companies?
So what would be the best way to directly deal with Belize, Panama etc.
How are you guys getting answers to these questions ,I dont see any
yea what andre said ,how can I use this higher % intrest ? WHo brokers these accounts ?
David Bahn says
THE WORST HIT I EVER TOOK ON MY RETIREMENT ACCOUNT WAS AN INVESTMENT A FINANCIAL ADVISOR ADVISED ME TO MOVE SOME MONEY. IT WAS MOVED TO BANK OF AMERICA. I LOST MY SHIRT, shoes, socks, pants, underwear, bow tie, and the hair on my legs. JUST SAYING
There’s a big difference between investing in Bank of America stock (becoming an owner of part of Bank of America) and putting money into a Bank of America savings account. Also, Bank of America’s interest rate for savings was simply a convenient example here (it’s not that great of a rate, anyway, is the point).
Losing the hair on your legs sounds kinda handy though. Usually people have to pay for a wax or electrolysis.
Totally agree! I’d rather get free wax service than to pay for one ??
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
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
If I may do some expounding, though I didn’t do compounding I found confounding an astounding $2000 when in fact .02% results in a resounding $200 (an error not by rounding). Those abounding in wealth do not take a pounding by putting a million into a savings account
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.
Arca Trading Co. says
Very interesting that this link to a supposedly blog made a reroute domain to the Gmail access account. What is your intention doing that?
Thanks for the FDIC info! I agree that BoA is unlikely to fall, but then again, I can’t predict the future! Anything could happen.
Yep, like New2TheRatRace said, I was was referring to APY. For the BoA account, for example, the monthly interest rate is 3.88%.
Interesting question, bringing taxes into it. Your tax bracket would depend on how much other money you had. But yes, I assume it would be rather high, regardless, so you might want to be a little more aggressive with your million!
Finance Guy says
At a $1MM, two things happen:
1) You get a much higher interest rate from banks
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.
Arca Trading Co. says
About financial planners. Be careful you don’t end paying more fees than the yield and interest you suppose to earn. Having a million is not such as having 10 million. My advise is to split it in a diversified portfolio in five different financial markets starting with 20% in cash value (FIdelity is a good one), another 20% in high yield accounts on major savings accounts, 20% in conservative mutual funds, open a trade account with a major player on FOREX and the rest buy/sell commodities, precious metals, indexes, options, with a trading partner. With this you will be learning how the financial markets are made and began to really have fun in life. What all that means is that you will be your own financial advisor in about 24 moths. One thing here, you save a lot in fees, hidden fees, bad advise, losses made by the greed of others and overall you will know that if you loose something will be a good motive to continue learning what to do with your own money. And it doesn’t take a high IQ to learn the basic principles of Finance. Last but not least, enroll in a college for finance or in a institution that teaches finance not escaping the fact that you need some accounting and real state classes spiced with investment courses. If you don’t have 10 million in three to five years you really need someone to help you loose your million.
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).
probably about 10 million times more likely the bank will fail before you win the lottery. so keep buying those tickets, sucka
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.
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.
Wayne Smith says
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.
You will make the biggest mistake to bank with Bank of America.
This bank will rip you off big time. Check this link out.
Mona Cleglachlan says
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.
@Mona – No investment is 100% risk free, even bank accounts. There is always an inherent risk to giving your money to someone else. Also, though, there’s an inherent risk to sitting on your money and NOT giving it to someone else! (That risk is inflation, the fact that it will lose value over time.)
This is what economists call “opportunity cost” – doing something (or nothing) with your money means you can’t do something else with it, so every action (or inaction) has its own risks.
I know what you’re trying to ask, but the fact is that with money, risk=reward. The more risk you take on, the greater the returns over the long run.
To get at least $3500 a month out of $700,000, you would need to get 6% (yearly) returns on your money. That’s more than a bank is going to give you, so you’ll need to take on more risk. There are some relatively conservative (less risky) investment that will give you 6%, though!
I highly suggest you check out this book: The Bogleheads’ Guide to Investing. It’s no-nonsense, easy to read, and will help point you in the direction of getting the returns you want. Good luck!
What about CD’s. Don’t they draw alot of interest?
@James: CDs generally have a similar interest rate to online savings accounts. So yes, they’re definitely an option, although they require a lot more maintenance than a savings account, since you’ll have to reinvest the money when it matures. (Well, you don’t have to!) So yes, CDs are definitely an option – it depends on how you want to manage your money.
I would invest it through amortized loans . on sites like prosper. thats what banks do. just become the banker.
I would use it for grands college tuition.
Art Mann says
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.
Lynda Wyatt says
@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!
Haroun Kola says
My goal is to have $100,000 in a fx trading account, learn to trade successfully and earn 5% growth every month.
Some one who works in a bank says
$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.
John Idyu says
If you won $659M US MegaMillion jackpot, how would you invest, spend, save that lot of half a billion.
An amount like that? I’d pay for a high-net-worth investment advisor. But I’d be telling him/her that we can stick with safe, low-risk investments, because even if you only made 5% returns, that would earn almost $33 million dollars a year in interest alone – more than enough to live off of and donate huge amounts to charity without ever touching the principal.
Money will always be a subject of great interest because it holds the fabric of our lives together. Investing requires great risk if you are trying to get wealthy. It’s great to have a plan but greed often destroys people.
True wealth comes to those that are not intimidated by great losses. This is the risk that’s involved when you start talking about millions of dollars.
Joe Rodriguez says
Good info , hope to use it in the near future.
Leroy Ivan Talbert says
I been looking for information like this to
To have a ideal of what to do if had hit the lotto for some millions of dollars & just have a ideal or plan of action to do with the money & the Lord guided me to see you great minded people God bless each & every last one of you brilliant minded people for this great advice looking forward to utilizing it this information in the nearest future, by hitting the lotto for 10 million.
PHELYCKS ONUKWUGHA says
IS there a $1,000000.00 dollar (1M DOLLAR NOTE) in USD, IF SO WHAT DOES IT LOOK LIKE? A Picture of it will be highly appreciated. Thanks.
Dog gone says
So what is the recommendation,what is the first thing to do with 8oom. What bank to deposit in, how to keep it safe.
Ray Barton says
With a $1,000,000,.00 jacket pot would change my hole world for me and my wife. I get a disability check and SSI every mth and my wife has to work at crape job that she can fine just so we can get by. We rent and it take everything we have to pay that not including the bills and food. Plus we have a grandson that we take care of and he is only 11 and he is the love of our life. So win a $1,000,000.00 we could build a new home and have things that we only dream of buying. But most of all I put a big amount of money in a trust fund for my grandson for college. He is all I care about I want him to have a life and with some this money i know he will. But as far as me and wife she can quite working and just enjoy life in our old age. But a new home is what we really want we are tired of renting for over37 years and it been way to long. So I hope that we are the lucky one and win the 1 million dollars I be a very happy guy.
Scott smith says
I have delt With Charles swab & vanguard in the past are they companys still worth the investments to yeld good Capitol gains? Kansas city area. Was deversified very well at the time 15-20 years ago. Plus T bonds witch did very well on maturity almost double. Also an inira
My father set it up years ago and earned fairly Good returns the t- bonds especially matured to a little under doubled after I think 10 or 15 years. Thanks
@Scott Smith – Vanguard and Charles Schwab are both good companies that offer very low-cost investments. I slightly prefer Vanguard because they are member-owned (so you are both the customer and the owner of their company when you invest through Vanguard), but you really can’t go wrong with either one of those.
Savvy History says
Love this post! Thanks for doing the research and presenting it in such a manageable and understandable way. I like the idea of playing it really safe, just taking the $50,000 a year and feeling set, even if inflation was close on its tails.
To the comment above, I also prefer Vanguard because it is member-owned… I hope nothing changes after the passing of its founder.
Aw, shucks, thanks! It could definitely use an update, though. I keep meaning to get to it… as I used to say in my stage managing days, “It’s on list, it’s on my list…”
Samuel Mickles says
9-12% on a million dollars would be $900,000-$120,000 a year.
bryan stock says
how could it be 900,000