Income through interest is one of the most common sources of post-retirement income around the world. Through this blog post, we aim to learn how much interest one would be able to earn from a 5 million investment. In addition, we will also explore how interest rates are calculated and learn more about compound interest.
How Much Interest Would 5 Million Make?
A $5 million deposit in a bank account would generate $4,000 in interest in a year. However, this estimate is based on the currently low rate of interest of 0.08%; which may not prove to be viable for investors in the long term.
Interest income through a savings account is a reliable, low-risk option to keep your principal safe as you manage your expenses through a passive income.
An option with higher rates of return that can be considered by investors is T-bonds or Money Market Funds.
How Can I Calculate Interest Income On 5 Million?
In order to calculate interest income on 5 million, one would also need to know the number of years for which the principal amount will be kept deposited in a savings account. Below is a 5-year list of interest rates for 5 million dollars at the rate of 2%:
- In year 1, you can expect to earn $5,100,000
- In year 2, you can expect to earn $5,202,000
- In year 3, you can expect to earn $5,306,040
- In year 4, you can expect to earn $5,412,161
- In year 5, you can expect to earn $5,520,404
How Is Compound Interest Calculated?
Compound Interest is based on the periodic addition (usually annual) of additional amounts to your principal amount due to which your passive income through interest earnings can rise.
For instance, if someone has $5000 in savings and at the end of the fiscal year, they earn $50 on this amount. If this additional amount is added to the original (or principal amount) of $50,000, the interest generated will be compound interest.
This discussion in this article concludes that saving 5 million US dollars in a savings account can comfortably yield an annual interest income of $4,000 when the current rate of 0.08% is applied. However, this low rate of interest, with its limited returns may not be viable for long-term goals.