What Is a Jumbo CD? A jumbo CD is a type of savings account that typically costs $100,000 to start. The following article will provide you with a summary of information about jumbo CDs.
If you have a large amount of savings and want it to grow – but you don’t want to lose any money on high-risk investments – then a jumbo certificate of deposit could be the answer.
Jumbo CDs work like any traditional CD: You agree to keep your money as a deposit for a certain period of time, and in return, you are guaranteed a refund of the principal, plus interest.
In general, the longer the term, the higher the interest rate you will receive. However, if you withdraw your funds early, you may incur an early withdrawal fee, which could cancel out any interest earnings.
So what makes it “jumbo”? The differentiating factor of the jumbo CD is not the interest rate or the term, but the deposit amount. Jumbo CDs typically require a minimum opening deposit of $100,000, although some require less.
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Pros and cons of Jumbo CDs
Putting your money on a jumbo CD can help you earn a little extra interest for your down payment on a home, big vacation, or other goals. However, jumbo CDs are not for everyone. Before opening a jumbo CD, weigh the pros and cons.
Pros | Cons |
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Very low risk.
One of the biggest benefits of putting money on CDs is that you can earn some interest without taking any risks. Zachary A. Bachner, a certified financial planner with Summit Financial Consulting, says you’re also guaranteed the interest the bank offers as long as you meet the account’s terms. Funds are also protected by the US government for up to $250,000, as long as they are deposited in a federally insured bank or credit union.
Better rates.
Jumbo CDs tend to offer higher interest rates than regular CDs, although you may also have to commit to a term of three to five years to secure the best interest rate. “For investors with a large portfolio that includes stocks, jumbo CDs can provide safety and comfort when the stock market is volatile,” says Walters.
Low growth.
Although you can earn a higher rate with a jumbo CD, the interest rates on the deposit account are quite low. It’s likely your income won’t be high enough to weather inflation. Additionally, although jumbo CDs tend to offer higher interest rates than traditional CDs, the average difference is negligible. “The difference in annual percentage return between conventional CDs and jumbos is about 0.01%,” says Walters.
Logged.
Jumbo CDs may not be a great choice for urgent savings or money you will need soon. To earn the specified rate, you must keep the deposit for the entire term. “Normally there will be a penalty fee or return fee if you try to access the funds before the end of the specified period,” says Bachner.
What are the alternatives to a jumbo CD?
There are a few alternatives to a jumbo CD for those on a budget.
Some banks may not give any additional interest on jumbo CDs. In such a scenario, a normal CD could be a better option.
In some circ*mstances, you may be able to find a high-yield savings account, but keep in mind that the yield, unlike the interest on a CD, is susceptible to change. Savvy consumers browse around for the cheapest rate, even if it means switching to a different bank.
Warning about Jumbo CDs
Jumbo CDs bring safety and stability to your savings. In general, that’s a good thing. But depending on your monetization goals, a jumbo CD might be too safe.
If you plan to hold onto your savings for several years or more, you may see better returns by investing in low-risk bonds or exchange-traded funds.
Also keep in mind that since it’s a jumbo CD, a large amount of your money could go missing due to rising rates.
Finally, you should be careful about keeping too much margin.
The Federal Deposit Insurance Corporation insures up to $250,000 per depositor, per institution. So, if you have two accounts with combined balances in excess of $250,000, the money is at risk. “If the bank goes bust, you may not receive additional interest, and your initial investment may be at risk,” says Bachner.
The threat of inflation
In most cases, jumbo CDs do not keep up with inflation.
If the economy’s inflation rate is 2% and the CD interest rate is 2%, the investor is only receiving 0.5 percent in actual terms.
To make a jumbo CD investment viable, investors must lock in their assets for longer maturities, resulting in a higher rate.
Penalties for early withdrawal
If the holder needs the money before the jumbo CD matures, there will be a financial penalty, which might be a fee levied by the bank for the loss of income collected to date.
Each bank will have its own set of restrictions and procedures regarding early withdrawals.
If the funds are expected to be needed before the CD matures, investors may be better suited to placing the funds in a non-restricted account, such as a high-interest savings account.
Interest rate volatility
Interest rate risk is another source of concern for jumbo CD holders. This occurs when current market interest rates increase above the jumbo CD rate. If interest rates climb while investors are holding a Jumbo CD, they will miss out on greater yields if this money were available to invest elsewhere.
Best Jumbo CDs
“For anyone looking for safety and knowing they won’t need the money for a while, jumbo CDs could be a good fit,” says Walters, adding that jumbo CDs can be used. by investors who want to counterbalance stock volatility in their investment. investment portfolio.
The best jumbo CDs are offered by credit unions, where the CDs are known as stock certificates.
To join a credit union, you must meet the eligibility criteria for membership. Here are today’s top jumbo CD prices, along with how to become a member of the organization that offers them.
Best Jumbo CD Rates for 3-24 months
| Term | Institution | APY | Minimum deposit for APY |
| 3 months | Navy Federal Credit Union | 0.45% | $100,000 |
| 3 months | SchoolsFirst Federal Credit Union | 0.35% | $100,000 |
| 3 months | Golden 1 Credit Union | 0.25% | $100,000 |
| 6 months | Navy Federal Credit Union | 0.50% | $100,000 |
| 6 months | SchoolsFirst Federal Credit Union | 0.45% | $100,000 |
| 6 months | Golden 1 Credit Union | 0.40% | $100,000 |
| 1 year | Navy Federal Credit Union | 0.75% | $100,000 |
| 1 year | Golden 1 Credit Union | 0.60% | $100,000 |
| 1 year | SchoolsFirst Federal Credit Union | 0.60% | $100,000 |
| 18 months | Navy Federal Credit Union | 0.80% | $100,000 |
| 18 months | SchoolsFirst Federal Credit Union | 0.70% | $100,000 |
| 18 months | Golden 1 Credit Union | 0.60% | $100,000 |
| 2 years | Navy Federal Credit Union | 0.85% | $100,000 |
| 2 years | SchoolsFirst Federal Credit Union | 0.75% | $100,000 |
| 2 years | Golden 1 Credit Union | 0.75% | $100,000 |
Best Jumbo CD Rates for 3-7 years
| Term | Institution | APY | Minimum deposit for APY |
| 3 years | Navy Federal Credit Union | 0.90% | $100,000 |
| 3 years | Golden 1 Credit Union | 0.85% | $100,000 |
| 3 years | SchoolsFirst Federal Credit Union | 0.85% | $100,000 |
| 4 years | SchoolsFirst Federal Credit Union | 0.95% | $100,000 |
| 4 years | Golden 1 Credit Union | 0.90% | $100,000 |
| 5 years | SchoolsFirst Federal Credit Union | 1.10% | $100,000 |
| 5 years | Golden 1 Credit Union | 1.10% | $100,000 |
| 5 years | Navy Federal Credit Union | 1.05% | $100,000 |
| 7 years | Navy Federal Credit Union | 1.10% | $100,000 |
Annual percentage yields (APYs) are presented as of May 2, 2022, and may differ by area for some goods.
Premium Choice Credit Union
Ratio: 1.4% annual percentage yield
Who can join: Membership is open to people who live or work in certain counties in Minnesota and Wisconsin. Members of the Consumer Council of America are also eligible to participate.
Wings Financial Credit Union
Who can join: Membership is open to individuals who live or work in the following areas (or have family members who do): eligible Minnesota or Wisconsin counties; Seattle-Tacoma, Washington, metro area; Detroit metro area; Orlando, Florida, metro area; and the Atlanta metro area. You can also join if you or a family member works for airlines, government agencies that work with the airline industry, or works directly at airports with air freight jobs, courier or air freight, or a member of the Wings or Wings Financial Establishment.
First Federal Credit Union
Who can join: Anyone who lives or works in California can participate. Non-residents can also join if an immediate family member is a current Golden 1 member or if they work for one of 1,000 select employee groups.
Naval Federal Credit Union
Who can join: Service members and veterans from all branches of the armed forces are eligible to participate, as are their family members. Civilian employees of the Department of Defense may also participate.
FAQs about Jumbo CDs
The huge account initial amount necessary for these sorts of CDs is referred to as a jumbo CD. A jumbo CD typically requires a minimum account initial balance of $100,000, however, this is not always the case.
“Some of those… smaller jumbo minimum deposits are a holdover from when the FDIC insurance ceiling was $100,000 rather than ($250,000),” says Greg McBride, CFA, Bankrate’s senior financial analyst. “A jumbo CD would be issued for $95,000 to allow for some headroom for interest profits while not exceeding the FDIC insurance gap.”
A standard CD may not even require a minimum deposit and may offer a greater APY than a jumbo CD.
According to the Richmond Federal Reserve, negotiable CDs can be sold to another party, who subsequently has the option to resell the CD. Secondary marketplaces exist for negotiating CDs. A brokered CD is a type of CD that may be sold on the secondary market.
Brokerages and independent salespeople can occasionally get a better deal. According to the SEC, this may be permissible if they can pledge to provide a precise monetary amount to the financial institution.
