What is a Jumbo CD?

Many savers want the highest interest rates available for their money, and in order to get the best yield they have to lock their money up for a fixed maturity. If they park their savings in a savings account or money market, they can withdraw it any time but if they park it in a CD (certificate of deposit), that fixed maturity will earn them a higher interest rate. If you are investing nearly $100,000 you can buy a jumbo CD, and that will make your interest rate even higher.

Let me explain …

California jumbo cdsTo get the best CD rates you have to shop around, but the other tricks are to extend the maturity of your CD or increase the amount of money you invest. When you invest a lot of money into a CD, it’s called a jumbo CD and differs from a standard certificate of deposit. Below we take a look at the standard CD vs. the jumbo CD to help you better understand the differences between the two types of certificates of deposit.

Standard CDs

As you probably know, CDs are basically short term investments, insured by the FDIC (so they are risk free), in which the investor can remove their principal and any accrued interest after a specified amount of time called the maturity or term. CD interest rates from banks are based on the market interest rates, the term or maturity of the CD, the size of your investment, and any other obligatory options from the bank (such as callable features).

Now if you need to withdraw any part of the principal you invested in a CD before the specified maturity date arrives, you will usually be penalized with a bank fee or a drop in the interest rate your originally contracted for. If you purchase a callable CD, which basically allows the bank to return your money before the CD maturity date, that is another risk as well. Callable CDs often offer a higher rate than regular CDs but have the risk of being called when interest rates rise, for this will hurt the bank’s rate of return and they are likely to cash you out of the agreement.

The Jumbo CD

Now that we’ve covered the basics of a standard CD, what is a “jumbo CD”? The first difference is that a jumbo CD involves a principal investment amount of a much larger size than a standard CD. Most CDs being termed “jumbo” have a minimum investment of $100K although some jumbos start at $50. And some banks only want $95K for a jumbo CD.

Just as with a standard CD, the maturities of a jumbo CD range from 3-month terms all the way up to 5-years and beyond. The rate you can get, as well as the CD maturity, depends upon the bank, thrift, credit union or other financial institution offering the certificate of deposit you invest into. Both the standard and jumbo CDs are FDIC-insured so you don’t have to worry about losing your principal. So there you have it: the differences between a standard and jumbo certificate of deposit. The best CD interest rates are usually found when you purchase a jumbo CD.


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