Takeaways
- Jumbo CDs have a higher minimum balance ($100,000 or more) than regular CDs.
- Investors seek out jumbo CDs because they pay higher interest rates.
- Institution investors use jumbo CDs to balance risk and reward in large portfolios.
- Jumbo CDs garner stable interest income for conservative retirement portfolios.
- Fixed-income investors flock to jumbo CDs because they provide fixed interest rates, which help stabilize and virtually guarantee passive income portfolios.
What Is a Jumbo CD?
A jumbo certificate of deposit, also known as a jumbo CD, is a type of investment savings account that typically requires a large minimum deposit. Banks, credit unions, and other financial institutions issue jumbo CDs.
Jumbo CDs have a standard minimum deposit of roughly $100,000 or more. Like conventional CDs, however, they offer a fixed interest rate, or annual percentage yield (APY), over a specified term ranging from only a few months to several years. The standard term is between three months and five years.
In return for investing in a jumbo CD, you agree not to withdraw your deposit for a set period. During your CD term, the bank or credit union will pay you interest income higher than you might earn from a standard savings account. Longer investment terms usually command higher interest rates, too.
Although there are many types of certificates of deposits, fixed-income investors like jumbo CDs because they are considered low-risk investments. This makes them a great investment option for accredited and institutional investors with substantial cash reserves or those nearing retirement and wanting a stable source of passive income.
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Alliant Credit Union CD
Smart Money Rating: 5/5
APY: 5.10 % (Terms Apply)
Required Minimum Balance: $1,000
How a Jumbo CD Works
A jumbo CD works almost identically to a standard certificate of deposit but has a more significant minimum deposit requirement, corresponding to a higher interest rate. When you invest in a jumbo CD, you agree to leave that money in the deposit account for the agreed-upon term.
During a jumbo CD’s term, the bank or credit union pays you a fixed interest rate that is usually higher than other CDs and significantly higher than conventional savings accounts.
Once the Jumbo CD matures or reaches the end of its term, you can withdraw your initial deposit and interest accrued during the term.
The catch is that you will incur a penalty if you want to access those funds or withdraw them before the maturity date. This penalty can reduce or even eliminate the interest the deposit would have earned. This makes them ideal for investors with a significant amount of cash they can invest without worrying about liquidity later.
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Consumer Credit Union CD
Smart Money Rating: 5/5
APY: 5.00% on 13 month Certificate (Terms Apply)
Required Minimum: $250
How Do You Invest in a Jumbo CD?
Investing in a jumbo or conventional CD requires a step-by-step approach. First, you must do your due diligence and research banks and credit unions that offer the best competitive interest rates and terms that align with your financial goals.
Our Picks: Best Certificates of Deposits
If you are already an account holder at the institution where you want to purchase your CD, you can select the term and amount of the jumbo CD you want to buy and transfer investment funds. However, if you choose to invest at a new institution, you might need to open an online account with the new bank or credit union.
Once you have selected your new bank or credit union, you sign up to let them know you want to open a CD account and deposit the needed amount. From there, you will choose the term length and agree to the fixed interest rate. Once the jumbo CD is opened, you just let your money grow until the term ends.
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Quontic 6 Month CD
Smart Money Rating: 5/5
APY: 5.10%
Required Minimum Balance: $500
Pros of a Jumbo CD
Jumbo CDs offer several benefits that make them prime investment candidates for investors who want to earn interest income. Here are several advantages to consider:
- Higher Interest Rates: One of the biggest advantages is the higher interest rate than conventional CDs or other checking or savings accounts, especially when choosing longer-term CDs.
- Predictable Passive Income: Jumbo CDs also provide a predictable, fixed return on investment, which is critical in turbulent economic times. Interest income predictability lets financial advisors create CD ladders for their clients nearing or entering retirement.
- FDIC Insured: Investors consider jumbo loans extremely low-risk investments because they are generally issued by banks backed by the Federal Deposit Insurance Corporation (FDIC) or credit unions backed by the National Credit Union Administration (NCUA) up to allowable limits. FDIC and NCUA-insured deposits boost the safety of the jumbo CD relative to other significant investments like stocks, bonds, or real estate.
- Risk Management: Jumbo loans let you park unused cash and earn a return on your investment. You can utilize this risk-free investment to offset other higher-return and higher-risk investments, like investing in cryptocurrency.
Jumbo loan investment should be considered in a well-built and diversified portfolio. If you can commit to a long-term investment, a jumbo CD is a great way to secure a gradual increase in your net worth.
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Cons of a Jumbo CD
While they come with numerous advantages, jumbo CDs also have some drawbacks you should be aware of before investing. Here are some disadvantages of jumbo CDs that can make them less appealing:
- High Minimum Deposits: The large minimum deposit requirement can limit accessibility for many investors, which is why many high-net-worth, accredited, and institutional investors use this investment vehicle. The large minimum acts as a barrier to entry for many beginner investors.
- Opportunity Cost: While jumbo CDs offer better returns than regular CDs, other investment options like a high-yield savings account or dividend-paying stock might allow you to interest income and earn a higher return on investment.
- Lack of Liquidity: Once you deposit funds into a jumbo CD, they are locked in for the term, which means you cannot access them without incurring fees or penalties for early withdrawal. This lack of liquidity can be a significant disadvantage if your financial situation suddenly changes and you need access to this cash.
- Interest Rate Risk: Even though jumbo CDs offer higher fixed rates than traditional CDs, they typically still lag the effects of inflation. For example, if you have a 5-year term CD with a fixed interest rate of 4% and inflation suddenly jumps to 5%, you will lose purchase power with your CD investment.
Current Jumbo CD Rates
Certificate of deposit rates will fluctuate depending on the issuing financial institution, term length, and the total deposit amount. Here is an example of the certificates of deposits offered by Chase Bank:
| Investment | $50K-$100K | $100K-$250K | $250K or more |
|---|---|---|---|
| 3-Month CD | 3.50% | 4.00% | 4.00% |
| 9-Month CD | 2.00% | 2.00% | 2.00% |
| 12-Month CD | 3.00% | 3.25% | 3.25% |
Source: Chase Bank’s Website [1]
Remember that jumbo CD rates are influenced directly by the federal funds rate, broader interest rate environment, multiple economic factors like inflation, and the Federal Reserve policy.
Smart Summary
Jumbo CDs are regular certificates of deposits with very high minimum thresholds that pay investors higher interest rates for delaying their consumption. Many online banks and credit unions offer competitive interest rates and attract investors looking to accrue interest on their idle cash. Jumbo CDs are a virtually risk-free investment, particularly those backed by the FDIC or NCUA. Investors should consider the pros and cons of investing in CDs relative to other investment opportunities. However, if your financial goals align with the CD structure, they can make terrific additions to your portfolio.
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Frequently Asked Questions
Jumbo CDs pay interest to the investor at the end of the CD term. According to the CD’s specific structure, interest accrues daily or monthly. Financial institutions will disclose how they calculate their advertised annual percentage yield (APY).
Jumbo CD terms range from days to years. Many investors opt for a CD term that fits their investment time horizon and portfolio optimization. Standard jumbo CD terms are between 3 months and five years.
For investors with ample idle cash or those wanting to earn passive interest income, certificates of deposits can be an excellent investment. If you aren’t sure you want to invest in a CD, you can always consult with your financial advisor or financial planner.
(1) Chase. Chase Certificates of Deposit Interest rates. Last Accessed January 14, 2025.
