How Much Interest Can I Earn On $200,000?

how much interest will i earn on $200 000

how much interest will i earn on $200 000

Investing involves a series of constant tradeoffs and careful planning, and there is no one-size-fits-all solution. Different investments will provide different potential payouts over time. So when looking at how much interest you can earn with $200,000, the answer is that it depends on what investment type you’re putting the money into. We’ll analyze the interest in some of the most popular options in this article. If you’re looking for help to find the right investment plan for your money, then you may benefit from speaking with a financial advisor.

How Much Interest $200,000 Can Earn by Investment Type

If you have $200,000 to invest, the amount of interest you can earn depends on your profile as an investor and the investments you choose. Many people often confuse the idea of returns and interest payments. Returns are the money you can make off an investment through any method. Interest, on the other hand, only refers to payments you receive for a loan or other debt-related product. Interest can generate returns, but not all returns are interest payments.

Interest-bearing products have the upside of security. However, this security also tends to limit their value, providing a modest annual percentage yield (APY). Interest-bearing products tend to have low rates of return relative to other traditional investments like stocks or mutual funds.

If that seems like a good asset class for your portfolio, here are four common types of investments you can earn interest on and how much each typically pays out:

Invest in Bonds

  • Average Interest/APY: 4.66%

  • Value of $200,000 In Five Years: $251,150

When large companies and governments want to borrow money, they issue bonds. Those bonds are loans that the institution agrees to pay back in exchange for regular interest payments. The period of the loan is called the “maturity.”

For example, a company might issue a bond with a 10-year maturity and an interest rate of 5%. This means that for the next 10 years, the company will pay 5% of the loan each year to bondholders. At the end of the 10 years, it will repay the principal on the bond. If you buy one of these bonds for $1,000, you’ll receive $50 per year until the bond’s maturity date, at which point you’ll get your $1,000 back.

For interest payments, bonds tend to offer some of the strongest returns on the market. However, they also create a higher risk than other products. While it is rare for companies not to repay their debts, it does happen.

Invest in Certificates of Deposit (CDs)

  • Average Interest Rate At Time Of Writing: 0.03% – 0.39%

  • Value of $200,000 In Five Years: $203,931

A certificate of deposit, or a “CD,” is a form of loan that you give to your bank. With this product, you deposit a certain amount of money with your bank under the condition that you can’t withdraw it for a fixed amount of time. In exchange for letting the bank lock up your money like that, you receive a higher interest rate than you would for an ordinary savings account. The interest rate you receive depends on how long you give the bank your money.

For example, at the time of writing the shortest CDs offer an average interest rate of 0.03% for 30 days. The longest standard product is a 60-month CD, which offers an average of 0.39%. Different institutions will offer different rates though, and some investors can qualify for high-yield CDs if they invest enough.

A certificate of deposit offers just about the most security you can get from an investment product. This is secured by your bank and the FDIC, so you will almost certainly get your money back, but this is also a low-yield option. In fact, it is so low-yield that at the time of writing you would lose money relative to inflation if you put your money in a standard CD.

Invest in High-Yield Savings Accounts

how much interest will i earn on $200 000

how much interest will i earn on $200 000

Average Interest Rate: 1%
Value of $200,000 in Five Years: $210,202

Traditionally, savers have two types of accounts available to them through their banks: checking and savings. A checking account offers the most liquidity, you can move money in and out of that as you please, while also paying very little interest. A savings account offers some liquidity, but you generally have rules around how often you can move money in and out of savings each month. In exchange for that reduced access, you get a better interest rate. It’s still not great though, with a 0.07% average savings account interest rate.

To compete with this, many online and alternative banks have begun to offer what’s known as a “high-yield savings account.” These are not standardized products, so we can’t guarantee what you’ll see in every case, but most of the time they are ordinary savings accounts. You have the usual setup of high liquidity, with some rules around how often you can move money each month. To draw in business, they offer better interest rates than traditional banks. Usually, these interest rates are around 1%, but they can sometimes go closer to 2%.

Invest in Annuities

  • Average Interest Rate: 3%

  • Value of $200,000 in Five Years: $215,086

It’s slightly misleading to compare annuities to shorter-term investments. These products are designed to work over decades rather than years, so you would be more likely to buy an annuity that paid you over a 20-year period rather than just five. (In that case, you would receive back $265,440.)

An annuity is an insurance product that in some ways resembles a bond. The company that sells you the annuity agrees to pay back your initial investment with interest. However, with an annuity, the company repays both the principal and the interest at the same time. For example, if you buy a 20-year annuity, the company both increases your principal by the interest rate and issues payments each month for 20 years. The annuity is finished when your balance has been fully repaid.

The best version of annuities are products that you purchase in advance of repayment. For example, say you buy an annuity today that will begin repayment in five years. The interest on that account will compound each year before repayment begins, and will also compound while repayment continues. This allows you to collect much more back than if you bought an annuity that began repayment today.

Bottom Line

how much interest will i earn on $200 000

how much interest will i earn on $200 000

If you’re looking for interest payments on a $200,000 investment, generally your best options are to invest in bonds, annuities or CDs. You can also look for high-yield savings accounts to maximize the value of your cash. All of these options pay an annual APY between 0.03% and 5%. While none of these options are going to significantly increase your total amount of money from your original $200,000, the best option can increase it by $50,000 or more after five years, just from the earned interest.

Tips for Investing

  • Getting the right balance in your portfolio for your specific goals is important, but it can be a lot to figure out on your own. You may want to consider speaking with a financial advisor who can help you sort it out. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • Bonds can offer a good balance of security and return, especially if you invest for the long run. Learn all about how to invest in bonds and how it could potentially change your portfolio.

  • Determining the right balance, or asset allocation, in your portfolio can be difficult to figure out. You can use our asset allocation calculator to help you determine an industry-proven balance.

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