What Is a Jumbo CD?

A Jumbo CD Explained in Less Than 4 Minutes

 Investor comparing CD interest rates
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A jumbo CD is similar to a traditional CD but has a higher minimum balance requirement.

Since the deposit requirements are higher for a jumbo CD, you’ll often earn a higher interest rate on your funds. Find out if a jumbo CD is right for you.

Definition and Example of a Jumbo CD

A CD is a savings account where you leave your money for a fixed period. In exchange for leaving your money in the CD for the entire term, you’ll earn interest on your investment. 

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. 

It helps to shop around before choosing a jumbo CD. You might find a jumbo CD that better fits your budget and goals at an online bank than your current bank offers.

For example, a 60-month jumbo CD from Latino Credit Union has a minimum $100,000 deposit and yields 2.10% 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.

When you’re opening a jumbo CD, always review the terms and conditions your bank provides you before funding the account. Make sure you understand any early withdrawal penalties and how much interest you’ll earn.

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
  • Earn interest

  • Safe investment

  • No broker commission fees


Cons
  • Not a liquid asset

  • Riskier than regular CDs

  • Early withdrawal penalties


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. 

Key Takeaways

  • A certificate of deposit (CD) is a savings account that holds your money for a fixed period, and when the term is up, you earn interest on your investment. 
  • A jumbo CD is a certificate of deposit that has a higher minimum balance requirement.
  • Since you’re depositing more money, you’ll generally earn a higher interest rate on your investment.
  • If you buy a CD through a bank, your investment is insured for up to $250,000, making CDs one of the safest investment options. 
  • CDs aren’t a liquid asset, and there are penalties for withdrawing the money early.

Article Sources

  1. Cooperativa Latino Credit Union. "Deposit Accounts."

  2. Federal Depository Insurance Corporation. "National Rates and Caps."

  3. Securities and Exchange Commission. "High-Yield CDs: Protect Your Money by Checking the Fine Print."