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What is a Jumbo CD?

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Smiling Piggy BankLast week I looked at callable CDs, a type of CD that lets the bank “call” it in earlier than the maturity. Today, we’re going to take a look at Jumbo CDs. Jumbo certificates of deposit are just CDs with a very large deposits – usually over $100,000. They have all of the features of a regular certificate of deposit, except the minimum deposit is over $100,000.

Before the FDIC increased the insurance coverage to $250,000, jumbo CDs were only covered up to $100,000, like every other deposit. So if you put $150,000 into a jumbo CD, only the first $100,000 would be covered. The remaining $50,000 was subject to risk if the bank failed.

Why jumbo CDs? They usually had a higher interest rate than non-jumbo CDs, but with the rise in popularity of online banks, the spread has gotten much smaller. If you search the list of best CD rates, sorting for jumbo CD rates under product, you’ll see that the rates aren’t that much better than the non-jumbo CDs. Aurora Bank offers 1.58% APY on the jumbo 1-year CD and 1.55% APY on the regular 1-year CD (as of 4/5/10). Ally Bank offers no premium for the jumbo.

Do jumbo CDs make sense anymore? I don’t think so. Ten years ago, opening a CD required a trip to the bank and a lot of paperwork. Today, you can open one up in minutes. By opening up one CD, you give yourself additional flexibility. If you had $5,000 to save and opened up five $1,000 CDs, you have the flexibility of closing just one $1,000 CD if you needed the cash early. That’s a penalty on the $1,000, not the whole $5,000, plus the balance keeps earning interest.

Jumbo CDs are a relic of an earlier, simpler time.

(Photo: alancleaver)

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13 Responses to “What is a Jumbo CD?”

  1. echidnina says:

    How interesting… I’d never heard of these, but you’re definitely right that they don’t make that much sense anymore. I wouldn’t want to lock up all my money like that just for a .03% rate increase!

  2. Thanks for this article. When I read the title, I only had one question….are they still a useful investment vehicle. Personally, I didn’t think so, and you confirmed that.

    Of course, this may all change…but for now, if you have $100,000 to invest, there are probably better avenues than a Jumbo CD.

    • billsnider says:

      Hi

      Actually right at this moment, they pay the same as a money market fund in the local credit unions.

      Bill Snider

  3. Danny B says:

    What happen to the earlier,simple time ?

  4. George says:

    Although it is now very simply to open a CD, it remains challenging to cash out a maturing CD at many institutions. So I still gravitate toward larger CDs with bigger steps in my CD ladder. Although they still don’t qualify for jumbo status.

  5. zapeta says:

    I hadn’t heard of these…probably because I don’t have anywhere near the amount of money you’d need to open one. Unless there was a large difference in rates, I wouldn’t consider a jumbo CD anyway.

  6. David says:

    There are SOME people who put their money in CDs or gov bonds rather than paying off their credit card or mortgage which is silly.

    The average credit card interest rate is 12 percent and mortgage interest rate is 5 percent. I think earning a guaranteed 5 percent return on your money is much better than earning an after tax return of 2 percent on a CD or gov bond.

    • tbork84 says:

      You could even go a step further and say that paying down the much higher rate credit card debt is the best return on your money of all.

      • echidnina says:

        Absolutely. It doesn’t make any sense to save money at a lower rate than your debt, unless you need that money liquid. Locking money up in a <2% CD when you could be paying off 10+% debt makes no sense at all…

  7. billsnider says:

    I had a few of these. They made sense when the interest rate was significantly higher. this is no longer the case and thus i don’t have them anymore.

    Bill Snider

  8. billsnider says:

    Jim,

    Your comment that they were only covered up to $100,000 by the FDIC is wrong. You forget that the insurance is per person per account. So I had a joint CD with my wife which meant that my jumbo Cd was covered up to $200,000.

    Bill Snider

  9. eric says:

    I have heard of these but have never gotten one of knew anyone who did. It just didn’t make sense off the top of my head.


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