A jumbo CD comes with higher minimum balance requirements. Since you’re depositing more money, you’ll often earn a higher interest rate. However, the exact amount you earn in interest depends on where you open the CD, your term length, and the amount you deposited. For example, a 60-month jumbo CD from Latino Credit Union has a minimum $100,000 deposit and yields 2.35% interest. In comparison, a six-month jumbo CD from the same credit union has an interest rate of .35% with the same initial deposit.
How a Jumbo CD Works
A jumbo CD works the same way as a regular CD — you deposit a certain amount of money and agree to a specific term length. The term length can vary from six months to five years. You’ll earn interest on the funds deposited at the end of your term. The difference is that a jumbo CD comes with higher minimum balance requirements. You can typically open a jumbo CD at a bank or credit union. A jumbo CD is a good option if you have a lot of savings and want to earn interest on your investment. For example, in February 2022, the national deposit rate for a savings account was 0.06%, whereas a 12-month CD had a rate of .14%. Jumbo CDs tend to return much higher rates, so your money will earn more in one of these accounts. However, you want to be sure that you can afford to leave the money untouched for the entire term.
Pros and Cons of a Jumbo CD
Pros Explained
Earn interest: Since CDs provide a fixed rate of return, you know how much you’ll earn on your investment. Safe investment: If you buy a CD through a bank, your investment is insured for up to $250,000. That makes CDs one of the safest investment options available. No broker commission fees: Since you invest your money directly with the bank or financial institution, you don’t have to pay any broker commission fees.
Cons Explained
Not a liquid asset: Since you agree to leave the funds in a CD for a specific period, you can’t convert them to cash without penalties or in a hurry if you need to. Riskier than regular CDs: The FDIC only insures up to $250,000 for a single account, so if a jumbo CD exceeds that limit, part of your investment is at risk. Early withdrawal penalties: You’ll incur penalties and fees if you withdraw the funds from a CD before its maturity dates.
