Is it possible to live a comfortable life from the interest in our bank account? Most likely not. But, what if we had a million dollars in the bank? Would that generate enough interest to be considered a passive income? Maybe.
“Can I live off interest of $1 million?” is a common question asked by people on the cusp of retiring or anyone trying to get creative with their finances. The answer to this query depends on several factors – many of them having to do with a person’s lifestyle and bank policies. Here’s what to consider when trying to figure out if you can live of the interest of a million bucks.
Interest rate. Today, most savings accounts only offer an interest rate of around one percent. That’s not a lot. According to Magnify Money, the bank with the best interest rate for saving accounts this month is Synchrony Bank, and they only offer 1.05% APY. That means if you put $1 million in their savings account today, you would only make $10,500 after the first year. The second year and third years, taking inflation into account — which is usually around 2.9 percent — you would earn another $10,610.25 and then $10,721.66.
CDs and Treasury Bonds. Although there is more freedom with a savings account, it obviously doesn’t generate enough income. Consider opening up a 30-year U.S. treasury bond. With 3.33% interest, you’ll collect $33,000 a year. However, that’s after 30 years, and in the meantime, you can’t touch the funds. Bonds don’t take into account inflation, so in 30 years that $1 million will probably only worth about $412,000, and money accrued will probably ring in at only $13,590. CDs are a slightly better bet — with an average 2.25% APY, after five years, you’ll rake in $25,000. However, interest rates can fluctuate, and they might dip over the course over five years. These are all factors to keep in mind when weighing CDs and treasury bonds.
For more of our outstanding articles, consider:
- Nine realistic ways to make money when you’re unemployed
- Surprising and weird stuff that sells well on ebay.
If you liked this article, please share it on social media or leave us a comment!
The dream has always been to save a million dollars and then retire. However, the reality of actually living off a million dollars is quite different as you point out. Unless you’re an investment guru it seems to be more of a pipe dream then a reality.