We go through life hearing of the same financial advice: save money, create a passive income, and start investing. But, whether IÂ invest in a retirement fund or the stock market or a savings account, what interestÂ can IÂ earn on this money? How much interest will I earn on $100,000, specifically?
Interest and Investing
There are different ways you can invest your money. You can put your money away into savings either through a savings account or retirement account; you could even invest funds into the stock market for a potentially high return.
Confusion can ensue, though, when trying to determine what route is best for you and your finances. The problem is that the answer is vague because it is contingent on a variety of factors. Depending on where you choose to invest your money determines how much interest you may receive.
For instance, the average interest on a normal savings account is just 0.06%, according to a 2013 article by Blake Ellis of CNN. In fact, it adds, many of the top banks in the nation actually only have a 0.01% interest rate. So, if you had $25,000 put into a savings account with the average of 0.06%, you’d only earn $15 in that first year. For best results, look for savings accounts that have closer to a 1% annual interest rate.
A certificate of deposit (CD), on the other hand, will earn you more interest over a shorter period of time. While they usually do not require monthly fees, you opt to keep your money in the account for a specified length of time. This can range from a few months to a decade. The interest rate you receive is determined by how long you decide to keep the money untouched in the CD. The Federal Deposit Insurance Corporation (FDIC) note the national rate averages on their site for both regular savings and CD accounts. For a 12 month CD, the average is 0.24% but can be as high as 0.99%, depending on who you choose to go through.
The typical national interest rate earned through the stock market on a large-cap stock is about 7% after inflation, says David Blanchett in this May 2016 article for the Wall Street Journal. Bonds, he adds, are yielding about 2%.
As for retirement funds, specifically 401(k)s, Investment company Morningstar’s Christine Benz told Interest.com that an average of 5% is a good estimate. This, too, depends on your plan and any fees associated with your account.
Now, back to the original question: How much interest will I earn on $100,000?
How much interest will I earn on $100,000?
Again, this is determined by what type of investment plan you use and the amount of time it is invested. Using the above numbers and investment routes, let’s crunch some numbers:
- With a standard savings account, $100,000 will earn you $600 in five years.
- A CD will yield $11,350 in five years (based on the top rates)
- It is possible to earn $35,000 on your $100,000 investment in the stock market, using the 7% average.
- Finally, with a 401(k) you may earn $25,000 in five years.
Your $100,000 has the potential to earn you much more as long as you invest wisely and choose plans with high-interest rates. You should also be willing to be patient in order to allow the money to accumulate more. Given the above information, where would you invest your $100,000 in order to yield the biggest return?