How much interest can you earn on $1 million in Australia?

The answer to the question of ‘how much interest can I earn on 1 million dollars?’ will depend on how you choose to save or invest that money, and for how long. This may be through investments like shares or property, via a savings account or a term deposit. As term deposits are one of the more secure investment options, we’ve taken a look at how much interest you could earn on $1 million when invested in a term deposit.

What is a term deposit?

Term deposits can be a low-risk way to invest your money (compared to something like shares) and they allow you to earn a fixed rate of interest. Generally, the longer you invest your money, the higher the interest rate you will receive. That being said, you often cannot withdraw money from a term deposit until it reaches maturity (the end of the term). Doing so may incur penalties such as fees or a lower interest rate being offered.

You may be able to choose when you receive interest, such as monthly or at maturity. Typically the more frequently you want interest to be paid, the lower the interest rate you will be offered.

If you are looking for a more flexible way to save, where you can access your funds at any time you may be interested in comparing savings accounts with Canstar. The interest rates on savings accounts are variable, meaning they can change due to economic conditions. This may make it harder to estimate potential interest earnings.

Compare Term Deposit Rates

How much interest would $1 million earn in a year?

This will depend on the interest rate and when interest is paid. As a hypothetical example, we’ve considered $1 million deposited in a one-year term deposit with interest paid at maturity.

At the time of writing, term deposit interest rates are reaching 5% p.a. (per year) in some cases. With a deposit of $1 million, you could earn about $50,000 in interest paid at maturity (calculated via Canstar’s Term Deposit Calculator). A lower rate, such as 4.50% p.a., would earn $45,000 ($5,000 less).

As you can see, there is a big difference in potential interest earnings depending on the term deposit you choose and the rate of interest you are offered. If you choose to roll over your funds into a new term deposit, you may not be offered the same interest rate, so it’s usually worth checking with the term deposit provider before doing so.

How much interest would $1 million earn in five years?

Generally, the longer you invest your money, the higher the interest rate you will be offered, but that is not always the case. We’ve also looked at $1 million deposited in a five-year term deposit, with interest paid at maturity. Five-year term deposit interest rates are currently lower than one-year rates, with the highest offered being around 4.50% p.a.

If you deposited $1 million into a term deposit offering 4.50% p.a., you could earn about $222,500 in interest paid at maturity after five years.

Remember that these are just hypothetical examples. How much interest you can actually earn on $1 million will depend on the specific term deposit you choose. The calculations also rely on assumptions, including assuming that all months are of equal length. For investments amounts over $1 million, you may need to contact the term deposit provider to find out what rates it’s willing to offer you.

It’s also important to keep inflation in mind when investing. If you lock your money into a five-year term deposit at 4.5% p.a., but the inflation of goods and services during the same five year period was over 5%, then although you’ve earned interest, your money may not go as far for the same goods and services.

Does the government guarantee cover my term deposit?

The Financial Claims Scheme (FCS) provides protection to deposits up to $250,000 per account-holder, per authorised deposit-taking institution (ADI). So for a $1 million deposit, only $250,000 would be protected by the scheme. Meaning if the financial institution with your $1 million investment went bankrupt, the Australian Government would only guarantee $250,000 and you would potentially be out-of-pocket $750,000.

As an alternative, you could consider splitting up the $1 million investment into separate term deposits with different financial institutions, to help ensure your money is protected in the event that the bank, building society or credit union where you have your term deposit goes bankrupt. But make sure you check whether any set-up or other fees apply.

Also some ADIs will function under multiple names, but only have one ADI licence. For example one of the big four banks in Australia, Westpac, also owns Bank of Melbourne, BankSA and St George Bank, but only has one licence. If you had a $250,000 term deposit with Westpac and St George Bank, only one of them would be covered by the FCS.

If you are planning for retirement, it can also be a good idea to seek personal advice from a qualified financial adviser.

The rates mentioned in this article are correct at the time of writing. Canstar’s term deposit database is updated daily, so the rates may be different to those mentioned above. You can use Canstar’s comparison tool to see today’s rates for term deposits. You may also be interested in seeing the highest term deposit rates currently on our database.

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