What Is a Jumbo CD?

What Is a Jumbo CD?

Jumbo CDs are a type of savings product you can use to earn interest by depositing money in an account for a specified term. Money in the account will accrue more interest than it would with a traditional savings account, but you won't be able to access your balance until the account reaches its maturity date.

You can find jumbo CDs from various banks and credit unions, and the exact requirements and offerings may vary depending on the financial institution.

However, many jumbo CDs have:

• A high minimum deposit requirement, such as $100,000
• Maturity periods commonly ranging from three months to five years, with shorter and longer periods available
• A higher annual percentage yield (APY) than regular CDs with the same maturity period from the same financial institution

Although jumbo CDs may have higher APYs than regular CDs from the same financial institution, they don't necessarily offer a higher APY than regular CDs with lower deposit requirements from other financial institutions.

Jumbo CD vs. Regular CD

The major differences between jumbo and regular CDs are the minimum balance requirement and the interest rate. Beyond the deposit amount and rates, however, jumbo CDs and regular CDs work the same way.

Jumbo CDs are themselves a subtype of regular CDs, which means you may find specialty jumbo CDs. For example, a bump-up jumbo CD that starts with a lower rate but comes with an option to adjust your rate later.

If you can find the same or a higher rate on a CD that has a lower deposit requirement, it might make sense to open the regular CD instead.

Pros and Cons of Jumbo CDs

Most of the advantages and drawbacks of jumbo CDs are similar to those of a regular CD, but you want to be especially mindful of the rate and required deposit amount.

Pros

• Could offer a relatively high APY: You might get a higher APY with a jumbo CD than a regular CD.
• Guaranteed returns: As with other types of CDs, jumbo CDs offer a guaranteed APY that you lock in when you open the CD and choose the term.
• A safe place to keep your savings: Most CDs, including jumbo CDs, are covered by FDIC or NCUA insurance—for banks and credit unions, respectively.

Cons

• Might not offer the highest APY: Compare the APY on a jumbo CD to the APY on regular CDs with the same maturity to make sure you're getting the best rate.
• Locks up a lot of money: You generally can't withdraw money early unless you close the entire CD and pay an early withdrawal penalty.
• There are some risks: Even if you don't risk losing your savings, there are opportunity costs to consider. For example, if CD rates rise, you'll still have a lot of savings locked up in your jumbo CD.

How to Invest in a Jumbo CD

Opening a jumbo CD will be largely the same as opening other types of CDs. But with more money on the line, you might want to review the fine print more closely.

1. Compare rates and requirements. First, compare APYs on CDs with the same maturity period to see which offers the best return. Minimum deposit amounts can vary, and there are even super jumbo CDs that have higher deposit requirements and APYs. If a credit union offers the best rate, make sure you qualify to join the credit union.
2. Check other fine print items. If several CDs offer the same APY for a given maturity, you might want to choose the one with the smaller early withdrawal penalty. Also, see if the CDs are callable, meaning the issuer can close the CD early and only pay you the interest that has already accrued.
3. Open your account. Apply for the CD online, over the phone or at a local branch. Unless you already have an account at the bank or credit union, you may need to share documents to verify your identity.
4. Transfer your funds. You'll have to fund the CD if you didn't make a transfer or deposit when you opened your account. You may be able to do this with an electronic transfer or check.

FAQs

• Are Jumbo CDs Worth It?

  A jumbo CD might be worth it if you have a lot of money to put into the account. Jumbo CDs tend to offer higher APYs than regular CDs from the same financial institution, and you can still choose from various maturity dates. However, it's always a good idea to compare APYs from different banks and credit unions.

• Is One Jumbo CD Better Than Several Regular CDs?

  A jumbo CD could offer a higher APY than a regular CD. However, if you find a regular CD with the same maturity date and APY, opening several regular CDs could be the better option.

  If you open a jumbo CD and need some of the money, you may need to close the entire CD and pay an early withdrawal penalty on the entire amount. You could wind up losing all of your accumulated interest, or even paying more in penalties than you've earned. But if you have several regular CDs, you can close one of them and keep the others open.

• Are Jumbo CDs FDIC Insured?

  FDIC insurance covers CDs from banks, including jumbo CDs. And NCUA insurance similarly covers CDs at credit unions. The insurance means that even if the bank or credit union fails, the federal government guarantees up to $250,000 of your money.

  The coverage is per depositor, per financial institution and per ownership category, and the insurance cap is for the combined amount of funds in each category. For example, a checking account, savings account and non-retirement CD, including regular and jumbo CDs, could fall under one category (single accounts). However, IRA CDs are in the retirement account category, so they have a separate $250,000 coverage limit.

Consider CDs As Part of Your Overall Investment Plan

Although CDs can offer a safe and guaranteed return on your money, they might offer lower long-term returns than riskier investments, such as stocks. If you're considering opening a CD, and especially if you plan on putting a lot of money into a jumbo CD, you may want to review your investment strategy and think about how CDs fit in.