If You Put a Million Dollars in the Bank, How Much Interest?

Depositing a million dollars into a bank account can lead to significant interest earnings. The amount of interest varies based on account type, economic conditions, and chosen strategies. Understanding these factors is crucial for maximizing returns on a large deposit.

Understanding Bank Account Types and Interest Rates

Different bank account types offer varying interest rates, impacting earnings on a large deposit. Standard savings accounts typically provide lower interest rates, with the national average around 0.39% to 0.59% annual percentage yield (APY) as of August 2025. These accounts prioritize liquidity, allowing easy access to funds, but are not optimal for significant interest growth on large sums.

Money Market Accounts (MMAs) offer a slight improvement over traditional savings accounts, often providing check-writing privileges and debit card access. The national average APY for MMAs was approximately 0.46% to 0.59% in August 2025, though some institutions offer rates above 4.00% APY. Some MMAs may also offer higher APYs for larger balances. Online banks often provide more competitive MMA rates due to lower overhead costs.

Certificates of Deposit (CDs) generally offer higher interest rates in exchange for locking funds away for a fixed term. Terms can range from a few months to several years, with longer terms typically yielding higher rates. For instance, current top CD rates can sit above 4.00% APY, with some reaching up to 4.50% APY for specific terms. A strategy known as a CD ladder involves staggering CD maturities to maintain some liquidity while still benefiting from higher fixed rates.

High-Yield Savings Accounts (HYSAs), often offered by online-only banks, represent a distinct category with significantly higher interest rates than traditional bank offerings. These accounts can provide APYs upwards of 4.00% or even 5.00%, considerably exceeding the national average for standard savings accounts. While offering higher returns, HYSAs still maintain the liquidity of a savings account, making them a popular choice for large deposits.

Checking accounts are primarily designed for transactional purposes and typically offer very low or no interest on deposited funds. The average interest rate for interest-bearing checking accounts was around 0.07% in August 2025. They are not recommended for holding large sums intended to earn substantial interest, as funds are best reserved for immediate spending.

Key Factors Affecting Your Interest Earnings

Interest rates banks offer are shaped by economic forces and institutional strategies. A primary influence stems from the Federal Reserve’s monetary policy, particularly its adjustments to the federal funds rate. This rate indirectly affects interest rates across the economy, including deposit accounts. When the Federal Reserve raises its benchmark rate, banks often increase deposit rates, and conversely, rates tend to fall when the Fed lowers its rate.

Inflation also plays a significant role in determining the real return on interest earnings. When inflation rises, the purchasing power of money decreases, meaning the real value of savings can erode if the interest rate does not keep pace. Higher inflation can lead to higher nominal interest rates on deposits, but the real return depends on how much the rate exceeds inflation.

The competitive landscape among financial institutions also influences the rates offered to depositors. This competition drives up rates as banks vie to attract large deposits, sometimes offering better rates or tiers for significant capital.

The specific amount of a deposit, such as a million dollars, can sometimes qualify an account holder for slightly better rates or premium account tiers at certain institutions. Some banks may offer tiered interest rates where higher balances earn a greater annual percentage yield.

Calculating Your Potential Interest Earnings

Understanding the distinction between Annual Percentage Yield (APY) and the simple interest rate is essential for accurately calculating potential earnings. APY (Annual Percentage Yield) provides a more accurate representation of annual earnings than a simple interest rate because it factors in compounding, where interest is earned on both the principal and previously accumulated interest. APY is typically higher than the simple interest rate when compounding occurs more frequently than annually.

To illustrate with a simple interest calculation, if one were to deposit $1,000,000 at a 1.00% simple annual interest rate, the earnings after one year would be $10,000. However, most bank accounts use compound interest, which significantly enhances returns over time.

Compound interest means interest earned is periodically added to the principal, and subsequent calculations are based on this new, larger amount. For example, a $1,000,000 deposit at a 4.00% APY would yield $40,000 in interest after one year. In the second year, the 4.00% APY would apply to the new balance of $1,040,000, generating $41,600 in interest, demonstrating accelerating growth.

The frequency of compounding also impacts the final APY. The more frequently interest is compounded (daily, monthly, quarterly, or annually), the higher the effective APY will be, even if the stated interest rate is the same. Financial institutions usually advertise the APY, which already accounts for the compounding frequency, offering a clear comparison.

Consider specific examples for a $1,000,000 deposit over one year:
At a 0.50% APY, the interest earned would be $5,000 ($1,000,000 0.0050).
At a 2.00% APY, the interest earned would be $20,000 ($1,000,000 0.0200).
At a 4.50% APY, the interest earned would be $45,000 ($1,000,000 0.0450).

Important Considerations for Large Bank Deposits

Depositing a large sum like a million dollars requires careful attention to deposit insurance limits to safeguard the funds. The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per depositor, per FDIC-insured bank, and per ownership category. This means that a single individual with $1,000,000 in a standard savings account at one bank would only have $250,000 of that amount insured. The remaining $750,000 would be uninsured in the event of a bank failure.

To ensure a million-dollar deposit is fully insured, strategies involving different ownership categories or multiple banks can be employed. For example, a married couple can have up to $500,000 insured in a joint account ($250,000 per co-owner), plus $250,000 in a single account for each spouse at the same bank, potentially insuring $1,000,000. Alternatively, spreading the funds across multiple FDIC-insured banks, ensuring no more than $250,000 is held in any single ownership category at one institution, provides comprehensive coverage. Some financial networks can also facilitate spreading large deposits across multiple banks to maximize FDIC insurance.

Interest earned on bank deposits is considered taxable income at the federal level. This interest is typically subject to ordinary income tax rates, meaning it is taxed at the same rate as wages or salary. Financial institutions generally report interest income to the Internal Revenue Service (IRS) on Form 1099-INT if the amount exceeds $10 during the year. Taxpayers are required to report all taxable interest income on their federal tax returns, even if they do not receive a Form 1099-INT. State and local taxes may also apply to interest income, depending on the jurisdiction.

Another important consideration is the trade-off between liquidity and yield. Accounts that offer higher interest rates, such as Certificates of Deposit, often require funds to be locked in for a specific term, limiting immediate access. Conversely, highly liquid accounts like standard savings or checking accounts typically offer lower interest earnings. For a large sum, assessing the need for immediate access to funds versus the desire for higher returns is important. A portion of the million dollars might be placed in a high-yield, liquid account for emergency access, while another portion could be allocated to higher-yielding, less liquid options like CDs for long-term growth.