If you’re looking to open a certificate of deposit, you’ve likely noticed that there are a variety of CD types to choose from: traditional, no-penalty, bump-up and step-up CDs, just to name a few. But if you have a massive sum of cash -- six figures’ worth -- that you’re looking to save and grow for a short term, there’s a savings account just for you: jumbo CDs.
What is a jumbo CD?
A jumbo CD is a savings account that operates just like a traditional CD but with a significantly higher minimum deposit, at least $95,000 or $100,000, compared with the few hundred dollars or so required for a traditional CD. Jumbo CDs typically offer a higher interest rate than traditional CDs, although not by much. Lately, however, they’ve lagged behind CNET’s top-yielding CD rates. Nevertheless, top-yielding jumbo CDs offer competitive yields, especially for large sums of money.
As of early August, the national average for a five-year jumbo CD is 1.36% APY, compared with 1.29% APY for standard five-year CDs, according to CNET’s sister site Bankrate.
Pros and cons of jumbo CDs
| Pros | Cons |
| Higher rates than traditional CDs | Significantly higher deposit requirement |
| Insured at banks and credit unions that are members of FDIC and NCUA, respectively | Rates aren’t high enough to justify the bigger deposit |
| Guaranteed return | Not offered at as many institutions |
As you weigh the potential benefits and drawbacks of jumbo CDs, many of the same rules that pertain to traditional CDs apply. On the plus side, you’ll earn a fixed interest rate and enjoy the protection of being insured by the Federal Deposit Insurance Corporation, FDIC, or the National Credit Union Administration.
However, jumbo CDs come with early withdrawal penalties, and their higher minimum balance requirements should make you think twice before opening one. For example, most experts will agree that the average annual return of the stock market is around 10%. (This varies wildly, of course -- that’s the risk of investing in the stock market.) So what would you rather do: Earn 10% on $100,000 over five years or lock up $100,000 in a five-year CD that pays a 4% APY? The answer is fairly easy, assuming you have the appetite for risk.
Another important caveat: The rate increase for a jumbo CD often isn’t worth the bigger chunk of money. Consider the current rates at Navy Federal Credit Union: A three-year CD with a minimum deposit of $1,000 earns 4.2% APY while a three-year jumbo CD with a minimum deposit of $100,000 earns 4.25% APY. That’s a nominal bump of five basis points. It’s hard to justify locking up so much money in exchange for such a small bump in earning potential.
Comparison of jumbo CDs and regular CDs
| Regular CDs | Jumbo CDs | |
| Interest rates | Varies -- the best one-year CDs are currently paying between 4% and 5% APY | Typically slightly higher than regular CDs |
| Minimum deposit requirements | Often none at all | Typically $100,000 (some at least $95,000) |
| Safety | FDIC-insured up to $250,000 per depositor (NCUA in the case of credit union share certificates) | FDIC- and NCUA-insured up to $250,000 per depositor, per institution |
| Additional flexibility | Often includes alternative types of CDs like no-penalty and bump-up CDs | None |
Ultimately, jumbo CDs and regular CDs share a lot in common: Both come with FDIC insurance (or NCUA insurance) of up to $250,000, per depositor, per institution, and both have set interest rates that let you calculate your exact return before opening the account. The big difference is the bigger deposit requirement. In the current savings rate environment, jumbo CDs aren’t really outperforming regular CDs by all that much. For example, Golden 1 Credit Union’s 15-month share certificate promo rate of 4.6% APY applies to every account: Whether you open one with a $500 minimum deposit requirement or $100,000, you’ll still qualify for the 4.6% APY.
Another drawback is that jumbo CDs have fairly rigid terms. While many banks and credit unions might offer additional CD products such as no-penalty and add-on CDs, jumbo CDs are pretty much set in stone.
Factors to consider when investing in a jumbo CD
If you’re thinking about opening a jumbo CD, first ask yourself these four essential questions first.
What are your investing goals? What are you saving for and when do you need the money? This is the most important question to ask, no matter where you’re putting your money. With a jumbo CD, though, it’s even more important because you’re contributing a large amount of money to open it.
Could you score a better rate with a non-jumbo CD? Bigger might sound better, but that doesn’t mean it actually is. Consider a three-year jumbo CD from Navy Federal Credit Union, which currently pays 4.25% APY versus a three-year jumbo CD from Synchrony Bank at 4.3% APY. Plus, Synchrony has no minimum balance requirement. So you could opt to put a portion of the cash in a CD -- $25,000, for example -- while diversifying the other $75,000 across other investment opportunities.
What are the risks? While jumbo CDs tend to be low-risk investments, they hold the potential for losing value due to higher inflation rates.
Can you afford to wait to get the funds until the maturity date? If you have concerns about liquidity, don’t open a jumbo CD. You’re better off with a high-yield savings account that won’t make you forfeit the interest if you need to make an early withdrawal.
How to invest in a jumbo CD
Opening a jumbo CD follows the same process of opening a regular CD. Here’s a rundown of what you’ll need to do:
- Compare rates and minimum deposit requirements. Most jumbo CDs come with a $100,000 minimum deposit requirement. Be sure to compare rates with regular CDs too, to determine if the bump from a jumbo rate truly justifies the bigger investment.
- Choose your term. Jumbo CDs come in a range of terms, so you need to think about how long you want to lock up the money. At the same time, you can consider the early withdrawal penalty, but this shouldn’t be a concern: If you’re opening a jumbo CD, you need to be confident that you can leave the money locked in the account for the full term.
- Make sure you meet the institution’s account holder qualifications. CNET’s picks for the best jumbo CD offerings include a number of credit unions, which means you may need to satisfy some additional membership eligibility requirements.
- Don’t exceed FDIC insurance requirements. Jumbo CDs don’t offer jumbo-size insurance protection. It’s the same type of coverage that you’ll qualify for with a regular CD, so make sure that every dollar is protected in the event of an institutional failure.
- Apply for the CD. You’ll need to share some basic personal information including your Social Security number and address. In most cases, you can apply for a jumbo CD online.
- Pay the deposit. If you’re transferring money from another bank account, have the details handy so you can move the funds easily.
Case studies: Real-life examples of investing in a jumbo CD
Case study A: Success -- Earning interest to cover closing costs on a house
Mark is planning to buy a home, and he’s confident he wants to make it happen next fall. With that in mind, he knows he needs to keep the money for his down payment safe, so he opens a 12-month jumbo CD with $120,000. It pays 5% APY. At maturity, he has earned more than $6,150 in interest -- enough to cover a big chunk of the closing costs. He starts shopping for the new house, knowing he has the extra cash to deal with the transaction fees.
Case study B: Failure -- Withdrawing money due to FOMO out on a booming market
Tim has been reading breaking news notifications of economic uncertainty, and he pulls money from the stock market to open a jumbo CD. He sleeps better at night knowing that his $100,000 is guaranteed to earn a 5% return. But then, the skies start to look quite sunny for investors: Inflation is under control, and geopolitical tensions begin to ease. Around a year after he opens the CD, he decides he can’t keep his money on the sidelines. There is an early withdrawal penalty of six months of interest, and he wipes away a sizable chunk of his earnings to get back in the market.
The lesson from these two examples is simple: If you’re aiming to open a CD, have a clear plan of your objective and your investing timeline. Understand your appetite for risk and recognize that the earnings from a CD can wind up looking a bit paltry compared with riskier investments.
The bottom line
If you have $100,000 or more in savings, jumbo CDs can be an appealing choice to look like a tempting choice even with a slightly higher APY than regular CDs, but it’s important to recognize that you’re going to need to lock away your large amount of savings to qualify. And as you look for safe places to store your money, make sure you’re casting a jumbo-size net that includes other options with significantly more flexibility such as high-yield savings accounts, money market accounts and no-penalty CDs.