What is a Jumbo CD and How Does it Work?

A jumbo CD is a certificate of deposit with a large minimum deposit, usually starting at $100,000. Like a regular CD, a jumbo CD offers interest in exchange for a fixed-term deposit, generally between three months and five years. Jumbo CDs are considered secure investments that can be a low-risk addition to your retirement portfolio.

Because jumbo CDs require much larger minimum deposits than traditional CDs, they usually come with higher interest rates. Some financial institutions increase interest rates as the deposit term lengthens, while others may offer better rates for shorter periods. If you’re considering a jumbo CD, it pays to shop around for the best rates.

The typical minimum deposit for a jumbo CD is $100,000, although some financial institutions only require $50,000. Jumbo CDs are also protected up to a certain amount. The Federal Deposit Insurance Corporation, or FDIC, covers deposits up to $250,000 per person, per bank. For instance, if you have $200,000 in a jumbo CD, $20,000 in your checking account and $25,000 in your savings accounts all at the same bank, your deposits will be fully covered by the FDIC.

The funds you use to invest in a jumbo CD account will be locked in for the entire term of the investment, whether that term is 9 months or five years. If you withdraw from the account before the term ends, the penalty could erase much of the earned interest or even some of the principal.

The interest rates on most jumbo CDs are fixed rather than variable, meaning the rate remains the same over the entire life of the CD. Depending on the issuing financial institution and the length of the term, interest might be paid during certain intervals throughout the term, or at the end.

Although jumbo CDs are considered low risk, they are still a significant investment. As such they come with both advantages and disadvantages. Weighing the pros and cons is an important part of maintaining a retirement portfolio that works to your advantage.

Jumbo CDs are offered by most financial institutions. Each bank and credit union will set its own interest rate and minimum required deposit. Most minimum deposits start at $100,000, but some can be as low as $50,000. Be sure to shop around for the jumbo CD that best fits your needs. Also, familiarize yourself with all the terms and conditions of your jumbo CD account, including when and how interest is paid, and what penalties you will pay if you need to withdraw your funds early.

If you have a large amount of money you’d like to grow, while reducing your exposure to risk, a jumbo CD might be a good fit for you. A jumbo CD lets you earn more interest than with a regular savings or checking account, without resorting to the uncertainty of the stock market. In addition, they can provide a low-risk option for your financial retirement plan that diversifies your portfolio.

The initial deposit is large, but the term limit can be short, giving you the chance to earn extra interest on funds that may be set aside for other purposes further down the line. Consult with a trusted financial advisor before making any major investment decisions.

While jumbo CDs can be a good investment if you want to diversify your retirement portfolio, they’re not the right choice for everyone in every instance. Other products might better suit your specific needs or situation. Don’t hesitate to reach out to your financial advisor for advice before making investment decisions.

Editor Malori Malone contributed to this article.