In the current climate of the world’s economy, financial planning and investment has taken on a newer, more dramatic importance in the minds of every consumer. The Federal Government bailouts, interest rate cutting, and other related crisis plans have got us all a little bit more involved in learning about what our investments mean and the best actions to take to stay within safe investing parameters. In the spotlight is the common investment certificate of deposit or cd. This is because investments like cds (which are known for such characteristics as being risk-free, high yield, and short term) are most likely to be affected the most and the most immediate. Below, we take a look at the standard cd vs. the jumbo cd, to help you better understand how your investments may be affected by the current economy.
Standard CDs
To begin, cds are basically risk-free, short term investments in which after a specified amount of time, the investor can remove his/her principal and any accrued interest. The cd interest rates are based wholely upon how long you opt to keep your cd open with the institution, how much the principal is, and any other obligatory options from the bank (such as callable features). If the investor needs to withdraw any part of the principal before the specified amount of time or maturity date, they are typically penalized with a drop in interest rate or bank fee. These are just the basics of your standard cd however. There are so many other aspects that a prospective or present investor must be aware of when obtaining cds from their bank or financial consultant. For example, you may decide upon a cd with callable features-which basically allows the bank to pull out of your agreement before the cd maturity if they find their investment no longer profitable-such as now, with the Federal interest rates about to be cut. It is best to ensure you do a lot of research- especially now – before entering into any cd investment agreement.
Jumbo CDs
With the basics of a standard cd still in mind, what is a jumbo cd?, then in contrast? The first notable characteristic-as you can imagine-is the size of a jumbo cd. A jumbo cd involves a principal of larger proportions; with most cds being termed “jumbo” at a minimum investment of $100K. Secondly, like a standard cd, the maturity date exists, typically in the range of 3 months to 6 years; with varying jumbo cd rates depending as always on how long and how much the banking institution you have chosen to go with has to invest. Like standard cds, jumbo cds are FDIC-insured and more often than not fixed rate agreements; so you will always get back your principal amount plus whatever accrued interest you may have locked in at. The one stipulation is-and seems to matter now in the present financial climate-that the FDIC-insurance only goes so far as $100K on jumbo cds, so anything else invested could quite easily be lost due to a flux in Federal rates. Moreover, the liquidity or the accessibility that an investor has to their principal investment is less so, and the penalties for early withdrawal a lot more harsh.
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