Whether you’re saving for retirement, or just made a windfall, knowing where to put your money to grow is essential. There are multiple ways in which money can be obtained building interest, But how much interest does $1.5 million earn per year? We break down several ways you can save $1.5 million, starting with the lowest return and lowest risk, moving to higher return and higher risk. If you want to automate your portfolio’s asset allocation, consider working directly with… financial consultant.
How much interest can you earn $1.5 million per year
Earn your interest investments It is the way most people grow their wealth and increase their available money during retirement. How much you can earn will depend on the amount of money you have to invest and the types of investments you choose. Riskier investments have a higher potential to return more interest on your money than safer investments, but the risk can be too high for some.
If you are looking to invest $1.5 million to maximize the amount of interest you can earn, the answer to how much depends on your investment choice. We will cover some of the most popular options for investing your money in order to earn interest and talk about how much you can earn from each of them. Here are five popular asset options for earning interest on $1.5 million.
1. High-yield savings accounts and money market accounts
High yield savings accounts They are savings products offered by some banks with a return of up to 1%, in contrast to regular savings accounts that earn only about 0.06%. It’s incredibly safe, with the FDIC insuring it for up to $250,000. While you may not want to put the full $1.5 million into one of these things, if you did, you would earn $15,000 in interest per year.
Money market accounts Similar to high-yield savings accounts. Unlike a savings account, it comes with a debit card and you can write checks. Withdrawals are usually limited to six per month, and you may have to maintain account minimums or pay account fees. However, some accounts can generate up to 2% annually without any risk. For $1.5 million, that means $30,000 a year.
Chances are you could use a savings account like one of these, but if you really want to grow that money, you’ll need to put at least some of it somewhere else. A balanced investment approach will provide you with an excellent opportunity to maximize interest without sacrificing the safety of investments such as a savings account.
2. Certificates of Deposit (CDs)
The next step up the ladder in terms of risk/reward is a Certificate of Deposit (CD). With a CD, you deposit your money with a bank or credit union for a set period with the agreement that they will pay it back at a specified time. Annual return rate (APY) after the expiry of the term.
How much interest does $1.5 million a year earn on a CD? Assuming you deposit for two years with an APY rate of 3%, you will receive $90,000, or $45,000 per year. This sounds like a big deal, right? Well, it depends on the market. if economic inflation Your CD exceeds, you lose purchasing power.
For example, the inflation rate in 2021 was 7.1%. If your money was locked into a CD that yields 3% annual return, your money would still be worth 4.1% less at the end of the year. Although CDs are low risk, in a high inflation environment there are better places to put your money.
3. Pensions
annuities They are long-term investments that can give you a slightly higher return on your money. They are commonly used in retirement planning. They allow you to save tax free and only pay taxes when you withdraw. Pensions are financial contracts you sign with an insurance company, usually with the agreement that they will pay you on a recurring basis.
Not all pensions are the same. Some delay payment for a long time, while others pay almost instantly. There are several different types of annuities, each with its own level of risk and return. Let’s break down how much interest you can earn on $1.5 million per year with each type of annuity.
Fixed annuities
a Fixed annuity It is the basic version of the annuity. Pension rates change on a daily basis. For the sake of simplicity, let’s talk about an immediate fixed annuity. At the time of writing this article, for an annuity paid out over five years, you can get a rate of about 4%.
How much interest does $1.5 million earn per year with a fixed annual premium? At an interest rate of 4% over five years, that’s about $30,909 in interest annually, or $154,584.11 in total. That gives you a monthly withdrawal of $27,576.40. While it’s better than a savings account, you can still get stuck in the water – or drown – if inflation exceeds that.
Indexed annuities
that indexed annuity It is the next level in terms of risk and return of pensions. An indexed annuity is linked to the performance of a specific stock market index, such as a stock market index Standard & Poor’s 500. This means that the annuity value can go up if the market is doing well.
There are more risks involved, but many of them guarantee a minimum percentage of principal, plus a small amount of interest. The upside is that if the market is doing well, you can see more returns. Beware though, indexed annuities come with caps that can limit your return. Each pension has different conditions. Even if the index performs at 12%, you will not get this rate of return.
variable annuities
variable annuities They are annual contracts that offer the highest return potential. However, unlike fixed annuities, their return is not guaranteed. With a variable annuity, you get to choose where the money will be invested. Depending on your choice, you could see a huge return, or you could lose money.
So how much interest does $1.5 million a year in variable annuity earn? For example, suppose you invest $1.5 million in a variable annuity that is paid at 10% annually and paid over 10 years. You will earn interest of $835,958.34, with a monthly payment of $19,466.32. This is a good return and means you made a solid investment. However, just because you can get a 10% return, doesn’t mean you will. The market can be unpredictable.
4. Funds and shares
Of course, you can invest $1.5 million in the stock market. The aforementioned S&P 500 is a leader index Which has shown an average rate of return of around 8% to 12% over the years. You cannot invest directly in the index, but an easy way to get in on the action is to invest your money in an index index fund or Exchange Traded Funds (ETF) which tracks the performance of the S&P 500 index.
It goes without saying that nothing is guaranteed in the stock market. A good year with a 15% return could earn you $225,000 in interest out of $1.5 million. On the other hand, a recession may occur and the market may swing in the other direction, turning $1.5 million into $1.25 million, or worse.
However, given the rule of thumb that the stock market grows about 10% on average per year, if you invest and hold, you can make good gains over time despite the declines along the way. Let’s say you invested $1.5 million in various funds and held it there for 20 years. With an average annual return of 10% over the course of twenty years, your $1.5 million will turn into over $10 million.
5. Real estate
Real estate is another place where you can put your $1.5 million. But don’t take that for granted housing market. Specifically, an investment in which you can see a decent return is the so-called Real Estate Investment Trust (REIT). While real estate can be volatile, some REIT markets have outperformed the S&P 500.
Moreover, REITs are known for dividend paymentsoften more than twice what it is in the S&P 500. This means that in addition to the interest yield, you can get an additional 2% to 4% annual return on average.
So, let’s say your REIT grows 13% in a year, with a 3% dividend payout on top. This results in an increase of $1.5 million by 16%, or an additional $240,000 in one year. Of course, if the real estate market falters, or if the REIT you invest in is poorly managed and fails, you could lose everything.
bottom line
How much interest does $1.5 million earn per year? It really depends on where you put it. If you store them in a low-risk account, your return will not be as high. However, if you invest it in assets, your return is not guaranteed. This supports why this is important Allocation of assets based on your needs. The younger you are, the more risks you may be willing to take. However, if you’re already retired or about to retire, you’ll want to keep that nest egg safe.
Investment tips
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If you are looking to maximize interest or income on your investments in retirement, you may want to consider working with a financial advisor. Your advisor can help you create the right asset allocation mix to achieve your financial goals. Finding a qualified financial advisor is not difficult. Free SmartAsset tool It matches you with up to three financial advisors serving your area, and you can interview your advisors at no cost to determine the right one for you. If you are ready to find a counselor who can help you achieve your financial goals, let’s start.
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It is important to diversify your investment portfolio and know the risks you face. Use our assets Allocation Calculator To start building the right portfolio to meet your needs.
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