When you're investing a large amount of money in a CD, a high yield can earn you thousands of dollars more than a low one. If you were to deposit $100,000 into a one-year CD that pays a competitive APY of 5 percent, you'd have around $5,000 in interest when the term is up, for a total balance of $105,000.
Generally, there's no certificate of deposit maximum amount. You can even deposit $1 million or more into a CD if the bank allows it. Some banks may have specific rules or offer higher interest rates for larger deposits, so it's worth it to shop around and compare options.
But there is a sad truth about a million dollars. Even that heady amount wouldn't earn you much in regular income -- if you put it to work in the "traditional" ways... $560. That's the most you will get each month if you put that $1 million into a 1-year CD, which, according to BankRate.com, is yielding just 0.67%.
Millionaires often diversify their assets and income sources. Mutual funds, stocks, ETFs, annuities, CDs, real estate and even speculative collectibles can all play a role in preserving and growing the purchasing power of hard earned dollars.”
J.P. Morgan Private Bank, Citi Private Bank, and Bank of America Private Bank are among some of the most popular banks for millionaires.
For example, you could earn more by putting $1 million into a CD. However, weigh the percentage rate against possible loss of your funds—at least $750,000 of that $1 million won't be FDIC insured. It may be better to distribute your $1 million into 4 FDIC- or NCUA-insured CDs at different financial institutions.
The safest place to put $1 million dollars would be in a combination of insured bank accounts and conservative investments, such as bonds and CDs, to ensure a balance of liquidity and stability.
Historically, the stock market has an average annual rate of return between 10–12%. So if your $1 million is invested in good growth stock mutual funds, that means you could potentially live off of $100,000 to $120,000 each year without ever touching your $1 million goose. But let's be even more conservative.
One major drawback of a CD is that account holders can't easily access their money if an unanticipated need arises. They typically have to pay a penalty for early withdrawals, which can eat up interest and can even result in the loss of principal.
CDs that originate from FDIC-insured banks are insured for up to $250,000, meaning that if banks fail, up to $250,000 of each depositor's funds is guaranteed to be safe. Anyone who wishes to deposit more than the $250,000 limit and wants all of it to be FDIC-insured can simply buy CDs from other FDIC-insured banks.
If you're a long way out from retirement, a CD probably isn't your best savings option. Retirement accounts like 401(k)s and IRAs offer tax advantages and potentially higher returns in the long run. Early withdrawal penalties can minimize returns.
While there aren't any financial institutions paying 7% on a CD right now, there are other banks and credit unions that pay high CD rates. Compare today's top CD and savings rates.
How To Calculate the Yearly Interest on $1 Million. How much interest does $1 million make per year? On average, investors can expect about a 10% annual return on the S&P 500 — that's $100,000 per year, provided you reinvest at least some of the dividends. However, your return depends on several different factors.
Is CD interest taxable? All types of income you earn in a taxable year must be reported to the IRS. That includes the interest on your CDs. As you earn interest on your CD even before it is fully matured, it is still considered taxable income and subject to the annual federal income tax.
These can include investing in real estate, stock, commodities and hedge funds, among other types of financial investments. Generally, many seek to mitigate risk and therefore prefer diversified investment portfolios.
At the current Treasury rate of 4.3%, a $1 million portfolio would generate about $43,000 per year, or roughly $3,500 per month. With your Social Security payments that would generate about $6,000, again enough to live comfortably in most places.
The classic approach to doubling your money is investing in a diversified portfolio of stocks and bonds, which is likely the best option for most investors. Investing to double your money can be done safely over several years, but there's a greater risk of losing most or all your money when you're impatient.
Money in a CD at an FDIC- or NCUA-insured bank or credit union is safe even if the bank or credit union fails. (If you have more than one CD at the same financial institution, you need to restrict the total amount in all the CDs to $250,000 or less to enjoy this protection.)
Just don't go to another branch of the same bank – that's not a separate institution. Individuals are insured at banks for up $250,000 in both deposit accounts and another $250,000 for deposits kept in IRAs. This allows individuals to keep up to $500,000 safely under the insurance limit, or $1.5 million for couples.
It's smart to put your down payment savings where it can earn a strong, safe return. Today's best CDs are a great option, as they lock in 4–5% rates that are guaranteed for months or years down the road. Whether you've saved $20,000, $30,000, or much more, a CD could boost your down payment by thousands of dollars.
5-year CD returns on $100,000
The returns you would earn on a 5-year CD are as follows: At 4.0%: $21,665.29, for in a total balance of $121,665.29 at the end of the term. At 4.5%: $24,618.19, for in a total balance of $124,618.19 at the end of the term.
The cons of CDs
With CDs, you typically can't withdraw the money whenever you want—at least not without paying a penalty. Another disadvantage is that CD interest rates can sometimes struggle to keep up with inflation. When inflation rises, the value of your dollar goes down.
While longer-term CDs may tie up your funds for years, a 6-month CD allows you to access your money relatively quickly. If you suddenly need your $5,000 for an emergency or a more lucrative investment opportunity arises, you won't have to wait years to access your funds without incurring hefty penalties.