How Much Interest on $1 Million Dollars Can You Earn?

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A $1 million investment can generate annual returns ranging from $4,500 to $100,000 or more, depending on the investment type and risk level. This guide explores various investment options, their potential returns and strategies to maximize your earnings.

Investment Options for $1 Million

How much interest does $1 million make per year? On average, investors can expect about 3% to 10% annual returns, depending on 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:

High-Yield Savings Accounts

A high-yield savings account allows you to safely store your money, as it earns more interest than a traditional savings account. Your money is also insured by the FDIC for up to $250,000 per depositor, per bank. Right now, you can earn around 4.00% to 5.00% APY, which is about $40,000 to $50,000 per year on your $1 million investment.

Certificates of Deposit

A CD is another safe, FDIC-insured way to invest your money. CDs earn interest over a set term, and you cannot withdraw — at least without penalty — until it reaches its maturity date. Interest rates on a CD can range from 3.50% to 5.00%. Using that example, $1 million earns $35,000 to $50,000 a year.

Mutual Funds

Mutual funds own a basket of stocks within a single fund, allowing you to invest in many company stocks simultaneously. Returns will vary based on the fund’s objectives and holdings, but something like an S&P 500 index fund might post an average return around 10% annually. This could earn you an average of around $100,000 per year on your $1 million investment.

Treasury Bonds or Notes

A relatively safe parking place for that cool million would be U.S. government debt, in the form of Treasury bonds, bills or notes. Current 20-year Treasury bonds yield 4.875%, which would mean you would earn $48,750 a year for a $1 million investment.

Bonds (or Bond ETFs)

Corporate or government bonds — outside of U.S. Treasuries — vary greatly in safety and return to the investor. You can buy individual bonds or a bond fund — or ETF — that offers interest on your investment. Most highly-rate bonds and bonds funds pay interest from 5% to 6%, which would earn between $50,000 and $60,000 per year on your $1 million investment.

Annuities

Annuities are insurance contracts that offer steady payments in retirement. There are several to choose from — fixed, variable and indexed annuities earn various returns, depending on how they are structured. You can earn from 3% to 8% per year, but may end up paying high fees. This would mean an income of $30,000 to $80,000 per year on your $1 million investment, before fees.

REITs

You can invest in real estate through Real Estate Investment Trusts (REITs), which are companies that you can invest in like a stock. These companies own and operate commercial and residential real estate, allowing you to earn money from rents collected. You can earn between 4% to 6% per year in REITS, which would earn between $40,000 and $60,000 per year on your $1 million investment.

Dividend-Paying Stocks

How much you can earn on $1 million with dividend-paying stocks will depend on the dividend yield. Average yields can vary by industry and company. Say, for example, you invest in dividend-paying stocks with an average yield of 2%, then your annual earnings would be $20,000. But you might earn more through price appreciation of the stock itself.

4 Strategies to Maximize Returns

If you have $1 million to invest, you’ll want to maximize your returns while lowering your risk. There are several ways to approach your investment strategy that can earn you a real income while protecting your investment:

1. Avoid High Fees

When investing, choose low-cost index funds, ETFs, or fee-only advisors instead of high-fee mutual funds or annuities. Even cutting fees from just 1% to 0.1% saves about $9,000 per year on a $1 million portfolio. This helps you keep more of your returns working for you.

2. Use a Laddering Strategy

Build a bond or CD ladder by splitting your money into investments with staggered maturities, e.g., 1-, 3-, 5- or 10 years.

For example: When a 1-year Treasury matures, reinvest it into a new 10-year bond. This can create steady income and reduce interest rate risk.

3. Account for Inflation

Inflation erodes purchasing power, so include assets that outpace it, like stocks, real estate or TIPS.

For example: at 3% inflation, $1 million loses nearly half its value in 25 years. Investing helps preserve long-term buying power.

4. Diversify

Spread your $1 million across different types of investments,  such as stocks, bonds, real estate, and cash equivalents. This helps you lower your investment risk through diversification, reducing volatility and improving long-term, risk-adjusted returns.

How To Diversify Your Investments: An Example

A portfolio with 60% stocks, 30% bonds and 10% cash can capture growth while cushioning downturns.

Tax Implications of Investment Income

When investing, it’s important to understand how taxes can affect your returns. If most of your investments are in tax-advantaged accounts — like a 401(k) or Roth IRA — you won’t have to worry about taxes when buying or selling investments, or when earning interest. You only pay before you invest, such as Roth accounts, or when you withdraw in retirement, such as with traditional accounts.

But if you have money in a taxable account, like a standard brokerage account, you might end up paying capital gains taxes on your earnings from your investments.

• Short-term capital gains: Short-term capital gains are charged when you earn interest or dividends on an investment, or when you sell an investment you’ve held for less than one year. Short-term capital gains rates are the same as your income tax rate.
• Long-term capital gains: Long-term capital gains are charged when you sell an investment you’ve held for more than one year. Long-term capital gains rates are 0% to 20%, and often lower than short-term capital gains rates.

You may receive lower tax rates on qualified dividends, and your income level can also affect the rate.

You might earn tax-free interest on certain investments, like municipal bonds. It’s a good idea to meet with a licensed tax professional when you invest larger amounts to ensure you’re only paying what you truly owe in taxes.

Hypothetical Investor Profiles

To see how different investment styles work in practice, meet three fictional investors who each take a unique approach to balancing growth and risk.

Conservative Retiree Chloe

Chloe is a retiree that doesn’t like risk, but wants a steady return in retirement.

She allocates her $1 million across:

• 40% to annuities
• 30% to CDs
• 30% to municipal bonds

Her blended return is about 4% annually, which provides roughly $40,000 per year in steady, low-risk income. She also lowers her state tax bill by incorporating municipal bonds into her investment strategy.

Growth-Focused Greg

Greg is still growing his wealth and working a high-paying job. He has a higher tolerance for stock market swings and investment more aggressively. He invests 70% of his $1 million in S&P 500 index funds and 30% in REITs. With an average return near 8%, Greg could earn around $80,000 per year in market gains and real estate income. 

Balanced Betty

Betty is a balanced investor that wants average returns with less volatility.

She divides her $1 million among:

• 40% to bonds
• 30% to dividend-paying stocks
• 30% to mutual funds

Her average annual return is about 6%, giving her approximately $60,000 per year in combined dividends and growth. 

Each of these investors matches their portfolio to their risk tolerance, income goals and timeline. The key is finding the right balance between safety and growth that fits your personal comfort level.

Actionable First Steps for New Investors

If you’re a new investor and have found yourself with sudden wealth of $1 million to invest, here’s what you can do:

Don’t make sudden lifestyle changes: It’s important to keep things steady in your life as you figure out your investing strategy. So you shouldn’t drop half-a-million dollars on a new house, or $100,000 on a new car without a plan in place.

Assemble a financial team: It’s important to have trusted professionals in your corner to wisely invest your money. Working with a fee-only financial advisor — also known as fiduciary — and a licensed tax pro can help you avoid big mistakes and build a plan you can stick to.

Define long-term goals before investing: Before you can choose investments, you need to know what your goals are. Write detailed goals, along with timelines, so you can tailor your investment approach accordingly.

Diversify investments to balance risk and return: Don’t put all your eggs in one basket. Spread your newfound wealth across different investments, asset classes and accounts to ensure you don’t lose all your money with any single investment.

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