What is the Interest Rate on One Million Dollars?
It takes an entire life to earn one million dollars. For some, it is plenty of income for life. What does the interest on one million dollars look like? You might have calculated that the interest rate on one million dollars is a hefty sum of money. Through this article, you will figure out that interest on one million dollars is less than you may have thought.
Interest is associated with saving accounts, market funds, and bonds. Investment income is determined with stock. If you have one million dollars then you must have some money in stocks. For the sake of this article, we are going to assume that interest means the cost of borrowing money. Hence, interest on one million dollars is defined as the money loaning your money to the firm whereas the firm will pay you interest in using your money.
How can you earn interest ?
Basically, there are two ways to earn interest on money; either through bonds or money market funds. The difference between bonds and money market funds is, in money market funds, if you have one million dollars, you are loaning the amount to your bank or brokerage. Meanwhile, they will pay you some interest based on their guideline on the money deposited. In short, interest is the bank’s cost of borrowing from you. On the other hand, in bonds, the same process is regulated but for a longer period of time.
What are the ways to earn interest on one million dollar?
The easiest way to earn interest is through bonds. They are one of the most common ways which define lending your money with the government or an entity. It isn’t as simple as it sounds. You have to learn financial terms to know the exact duration of loaning and it will decide the interest off one million dollars.
- Bills are for a maximum of 2 years.
- Notes are for between 2-10 years.
- Bonds are for between 10-30 years.
What is the interest of one million dollars?
Let’s do the math. For a long duration of time, the interest is very minimal. For money market funds, there are additional fees. Approximately, 0.50 will be the fees but it varies from bank to bank. The entire calculation is based on assumption and without including the taxes.
- Excluding the fees (0.5%) of 1.3% interest, we got 0.8 as the net earning.
- 0.8% of one million dollars is $8,000.
- Hence, per month the interest income is $666.67.
Moving on to the funds
- Deducting the 0.5% fees of 3% interest rate, 2.5% is the net earning.
- The interest income results as $25,000 a year.
- Therefore, per month interest income is $2,083.33.
The interest off one million dollars, for people living in the U.S., is not enough for a living. Therefore, they invest in other assets. Investing is like balancing your income between risk and reward. Therefore, it is important to know the risks before aiming for the goals.