If you have $10,000 to invest in interest-producing assets, understanding how much you can earn per year is key. The amount you can earn in interest varies based on the asset you choose. Let’s break down how much interest $10,000 can earn in a year. A financial advisor could help you identify the best interest income opportunities for your financial plan.
Liquidity and Risk Tolerance Considerations
$10,000 is a significant sum. But the amount of interest you can earn on this money varies widely. Two major factors impacting your returns are liquidity and risk tolerance.
Liquidity indicates how easily accessible your funds are. On one side of the liquidity scale are savings accounts which give you access to your funds at any time. On the other side, you’ll find certificates of deposit (CDs) that lock up your funds for a specified period of time.
The amount of liquidity you need varies based on your financial situation. If you have a robust emergency fund, then illiquid investments can fit into your long-term plans. If you don’t have emergency savings to tap into immediately, then a more liquidity opportunity is likely the right move.
In addition to liquidity, your risk tolerance will impact your interest-earning choices. Typically, investments that produce more interest come with more risk attached. You’ll have to weigh the lost potential earnings against the safety of the opportunity.
How Much Interest Does $10,000 Earn in a Year?
If you want to invest $10,000 into an interest-earning opportunity, then you have plenty of options. As a general rule, you can earn more in interest by taking on more risk. Let’s take a look at six ways you can earn interest and how much you can with with $10,000 a year:
Savings account. A savings account at a financial institution can offer you extreme liquidity. Safety is also included since bank savings accounts are guaranteed for up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) and credit union savings accounts are guaranteed for up to $250,000 through the National Credit Union Administration (NCUA). With accounts paying between 0.01% and 1.60%, you can earn between $1 and $160 on $10,000 in one year.
Money market account. Generally, a money market account pays more than a traditional savings account. Since money market accounts are currently paying between 1% to 1.60% in interest, you can earn between $100 to $160 per year with $10,000.
Money market funds. A money market fund is a mutual fund that invests in short-term debts. Currently, money market funds pay between 0.85% and 1.05% in interest. With that, you can earn between $85 to $105 in interest on $10,000 each year.
Certificates of deposit (CDs). CDs are offered by financial institutions for set periods of time. The lack of liquidity translates into higher interest payments. You can earn between 0.5% and 2.65%. Typically, a longer term means a higher interest rate. So, you can earn between $50 to $265 per year on a CD.
Treasury securities. Treasury securities, like bonds and bills, issued by the federal government are considered extremely safe investments. The amount you can earn varies based on market conditions. But current rates range from 0.86% to 2.96%. So, as of now, you could earn between $86 and $296 in interest for the year.
Series I savings bonds. iBonds are also issued by the federal government. Since this bond is paying 9.62%, it could help you earn $962 for the year. That’s one of the highest rates on this list!
Corporate and municipal bonds. Local governments issue municipal bonds to pay for major projects and corporate bonds are sold by large companies to borrow funds. Neither of these options is as safe as a U.S. treasury bond. But both tend to offer higher interest payments.
How much interest you can earn in a year will depend on the vehicle you choose. As an example, a $10,000 corporate bond could earn $478 in one year based on a 4.78% June rate. You should keep in mind, however, that interest rates fluctuate. The price goes up when interest rates fall and decreases when interest rates go up.
Bottom Line
If you have $10,000 to invest in interest opportunities, that’s an exciting time. But the multitude of interest-earning options, including savings accounts, bonds, and more, can make it difficult to choose. Although the amount of interest you can earn varies, you’ll likely find a level of liquidity that works well for your finances.
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