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How Much Interest Will I Earn On 1 Million

A few weeks ago we discussed if you could live off a million dollars. Another mental exercise people will do is figure out how much interest will I earn on 1 million dollars?

Interest VS. Return On Investment

First, it’s important to note a huge difference between interest and a return on investment. A return on investment means you have invested into something like the stock market, a business, or real estate, and are seeing a return on that.

Interest, on the other hand, is simply money that is given to you for allowing someone else to use your money.

So how much interest will I earn on 1 million dollars?

Interest

Even as simple as interest is, there are many things to consider. Where you put your money matters, some will be easier for you to access if you need, and some will provide more interest than others.

Savings Account

The most common of vehicles for gaining interest. It’s straight forward, and your bank that you have your checking account should be able to provide you with a savings account as well.

Unfortunately, interest on savings accounts has never been lower, most less than 1%. Meaning on a million dollars you’ll earn $10,000 a year.

Money Market Account

Similiar to savings, but usually with higher interest rates. Also, you typically can’t withdraw very often. Most money market accounts give 1.5% to 2%. On a million dollars that $15,000 to $20,000 annually.

Certificate Of Deposit

Commonly referred to as CD’s provide the best interest, even still they only come in at 2.35%. Meaning, with a million dollar investment you will receive $23,500 a year.

What’s different here is that you would have to put that money in a hold for 5 years before you would receive the interest. The good part of that is that it would compound in that time providing more income. At the end of year 5 instead of having $117,500, you will have $123,153.81, $5,653.81 more than getting the money every year. You could then take the interest and invest the principal again.

Return On Investment

After looking at those numbers you may realize that living off the interest is not an option. So what should you do instead? Here are the main things you could do.

Stock Market

The stock market is where most go to invest their money. If you have a retirement plan through work, then you are invested in the stock market.

Depending on your goals there are many different investment strategies. First, buying individual stocks. This can work if you know that the stock will go up (spoiler alert, you don’t). If you have a million to invest though, you can diversify similar to an index fund for smaller fees.

You will, however, have to continually check and balance your portfolio so that it’s never too heavy in one stock

An index fund may be an easier option. You simply put everything in one index fund and let it do all the work. It will continue to balance the portfolio for you and will do it without you ever having to think about it.

Real Estate

Buying real estate can grow your portfolio and provide a good income. If you buy and flip you’ll make quick money. Buying and holding for rental income is another great strategy but won’t make income as quickly.

What Should You Do?

So if you have a million dollars what should you do? First, contact a financial advisor and see what they say. It’s going to be different for everyone and I can’t tell you what to do (legally). The best thing about personal finance is that it’s personal.

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