Understanding Jumbo CD Rates
Jumbo CD rates typically have a higher rate of return than regular CD Rates because the amount of the deposit is larger or “jumbo” as they call it. Typically Jumbo CD’s are invested by institutions such as banks or credit unions. However, individuals with lots of money may also choose to invest in Jumbo CDs and can do so in the exact same manner.
The minimum deposit for a Jumbo CD is usually $100,000, however some banks may require a higher deposit. Jumbo Certificates of Deposit are secured just like regular Certificates of Deposit by the FDIC up to $250,000. Jumbo CDs are perfect for investors or institutions with lots of excess cash who are willing to invest significant monies for an extended duration.
CDs Defined
A CD is similar to a savings account except that there is usually a minimum balance required to invest in a CD, and the money in a CD is not available to you without a penalty until the maturity date of the CD. In return for allowing the bank to use your money for a set time, you will earn a higher rate of interest on a CD than on a savings account. If you need to take money out of a CD before the maturity date, you can withdraw it, but you will normally have to pay a penalty. Penalties vary but are usually 90 to 180 days loss of interest, with lower penalties for short-term CDs that have lower interest rates and higher penalties for long-term CDs with higher interest rates.
Jumbo CDs
Banks normally require about $100,000 to purchase a jumbo CD, which is a lot of money to tie up while the rates are low. However, CDs are safe and low-risk investments, so making a large deposit in an investment with jumbo CD rates instead of a few smaller deposits in investments with lower rates makes sense. Jumbo CD rates are typically higher than those for CDs with smaller balances, and you may be able to find some attractive rates if you shop around for the best ones.
Interest Options
Even though the rate may be the same on several different CD options, compounding the interest in a CD will allow it to earn more interest, making the annual percentage rate (APY) higher. However, if you want to receive a monthly income from your investment, you can request that the bank pay the interest to you by check or deposit it to a checking or savings account where you can access it easily.
Use Caution
Before investing a large sum of money in a jumbo CD, compare rates and options at various banks. You may find a wide variety of choices in minimum deposit amounts, interest rates, terms and conditions. When you select a CD, carefully read the conditions to determine if they meet your needs.
Safe Option
There may be investments that could possibly earn more money for you than what you earn with CDs, but they may not be guaranteed or safe. Although your money may not grow as quickly in CDs, they are the safest options available and insured by government agencies. The Federal Deposit Insurance Corporation (FDIC) insures $250,000 of funds deposited in US bank CDs, so there is no need to be concerned about losing money with them. For peace of mind, knowing that you will not lose money may be more important than earning more interest.
Shrewd Investment
During these troubling economic times, a CD with the highest interest rate you can get may be a shrewd investment vehicle for money you do not need in the next few years. If the economy turns around more quickly than you expect, you can withdraw the money and invest it in a more profitable CD. The penalty for early withdrawal may seem minor compared to the higher interest you will earn in an improved economy.