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What is a Jumbo CD?
Posted By Jim On 04/27/2010 @ 12:05 pm In Banking | 13 Comments
Last 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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 callable CDs: http://www.bargaineering.com/articles/what-is-a-callable-cd.html
 FDIC increased the insurance coverage: http://www.fdic.gov/deposit/deposits/index.html
 best CD rates: http://www.bargaineering.com/articles/best-cd-certificate-of-deposit-rates.html
 Ally Bank: http://www.bargaineering.com/articles/r/allybank.php?tag=jumboCD
 alancleaver: http://www.flickr.com/photos/alancleaver/4279482716/sizes/m/
Thank you for reading!