How Much Interest Does $1 Million Earn Per Month?

Interest is the monetary charge for borrowing money or the return received for lending it, typically expressed as a percentage. The amount of interest a sum like $1 million can earn monthly is not fixed, but depends on several variables. Understanding these factors and investment options helps clarify the potential for earning interest.

Factors Influencing Interest Earnings

The interest rate is the most significant factor determining how much interest $1 million can earn. This rate is commonly expressed as an Annual Percentage Yield (APY), which reflects the total interest earned on an investment over a year, including the effect of compounding. A higher APY directly translates to greater earnings on the principal amount.

Compounding frequency also plays a significant role. Compounding is the process where interest earned is added back to the original principal, and subsequent interest calculations are based on this new, larger balance. The more frequently interest is compounded—such as daily, monthly, or quarterly—the more often interest earns interest, leading to higher overall returns over time. This difference can become substantial over longer periods.

The principal amount is the base on which interest is calculated; in this case, it is $1 million. The time horizon over which the investment is held also impacts total returns, as interest compounds and grows over extended periods.

Common Interest-Bearing Options

High-yield savings accounts offer a liquid option for earning interest on deposits, providing rates significantly higher than traditional savings accounts. As of August 2025, top high-yield savings accounts can offer Annual Percentage Yields (APYs) ranging from approximately 4.20% to 5.00%.

Certificates of Deposit (CDs) provide a fixed interest rate for a predetermined period, known as the term. These instruments offer higher rates than standard savings accounts in exchange for keeping funds locked up until maturity. Current CD rates for various terms, as of August 2025, often range from about 4.00% to 4.60% APY. Investors can utilize a “CD ladder” strategy by staggering maturities to maintain liquidity while still benefiting from fixed rates.

Money market accounts blend features of savings and checking accounts, often offering competitive interest rates along with limited check-writing or debit card access. In August 2025, money market accounts are offering APYs generally between 4.15% and 4.40%, with some reaching up to 5.00%.

Bonds, including government and corporate bonds, represent loans made to entities that pay interest to bondholders. Government bonds, such as U.S. Treasuries, are considered low-risk, with 10-year Treasury yields expected to be in the range of 3.5% to 5.0% in 2025. Corporate bonds offer higher yields than government bonds to compensate for greater risk, with investment-grade corporate bonds yielding between 4.75% and 6.5% and high-yield bonds often above 7% in mid-2025. Municipal bonds, issued by state and local governments, are notable for their potential tax-exempt interest income.

Calculating Monthly Interest

To estimate the monthly interest earned on $1 million, a basic calculation involves dividing the Annual Percentage Yield (APY) by 12. For example, if an investment has an APY of 4.50%, the simple monthly interest would be calculated as ($1,000,000 0.0450) / 12, resulting in $3,750 per month.

The impact of compounding slightly alters this simple division, particularly over longer periods. When interest is compounded monthly, the interest earned in one month is added to the principal, and the next month’s interest is calculated on this slightly larger sum. This “interest on interest” effect means that the actual monthly earnings will incrementally increase over the year. For example, if $1 million earns a 4.50% APY compounded monthly, the first month’s interest would be approximately $3,750, but total annual earnings will precisely match the 4.50% APY ($45,000).

Considering illustrative scenarios, a $1 million investment in a high-yield savings account at 4.50% APY would yield approximately $3,750 in monthly interest. If invested in a Certificate of Deposit (CD) offering 4.25% APY, the monthly interest would be around $3,541.67. For a high-yield corporate bond with a 7.00% yield, the monthly interest could be approximately $5,833.33.

Tax Considerations for Interest Income

Interest income earned from most sources, including savings accounts, Certificates of Deposit, and corporate bonds, is considered taxable income by federal and state governments. This income is added to other forms of income and is subject to ordinary income tax rates. The specific tax rate applied depends on an individual’s total taxable income and filing status.

Financial institutions are required to report interest income to the Internal Revenue Service (IRS) if it totals $10 or more in a year. This reporting is done using Form 1099-INT, which taxpayers receive and must use when filing their federal income tax returns. All taxable interest income must still be reported, even if a Form 1099-INT is not received.

An exception to taxable interest income is found with certain municipal bonds. Interest earned on municipal bonds issued by state and local governments is often exempt from federal income tax. In some cases, interest from municipal bonds may also be exempt from state and local income taxes, especially if the bond is issued within the investor’s state of residence. This tax advantage can make municipal bonds appealing, particularly for individuals in higher tax brackets, though their yields are lower than those of taxable bonds.