Pros and cons of jumbo CDs

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If you’re looking to invest large sums of money in a certificate of deposit (CD) and hope to get higher yields from it, a giant CD might be the right choice. Like regular CDs, jumbo CDs also have a variety of maturity options, and the money earns a guaranteed fixed rate of interest until the CD expires.

Typically, however, jumbo CDs require a minimum deposit of $100,000 or more. While there are some advantages to locking in such a high deposit amount, there are a few things to be aware of before you commit to one of these big deposit CDs.

Advantages of jumbo CDs

higher interest rates

One of the benefits of locking up your funds for a period of time is that you usually get a higher rate of return. Consider CD rates compared to savings account rates: According to Bankrate at the time of writing, the national average savings rate is 0.16%, while the national average rate for one-year CDs is 1.03%.

The average for 1-year jumbo CDs is even higher at 1.07%, which means you can get a higher lock-in rate than regular CDs.

Guaranteed rate of return

Like most other types of CDs, jumbo CDs have fixed interest rates. This means that the interest rate you get when you first open the CD is the rate at which the currency will continue to grow throughout the term.

Guaranteed rates can be beneficial when rates drop. While the bank may lower the interest rate on other accounts, such as savings or money market accounts, the funds in the CD will continue to earn the same interest rate until maturity.

broad term

Availability of giant CDs varies by institution, but the most common terms range from three months to five years. Jumbo CDs may be short-lived – some institutions offer Jumbo CDs that mature in just a few days.


High minimum balance requirement

Most jumbo CDs cost at least $100,000 to open. Compared to other types of CDs, jumbo CDs require a larger investment in that period.

Remember, money in CDs is not liquid. If you choose to withdraw funds from the Jumbo CD before the end of the term, you may be subject to an early withdrawal penalty. Penalties usually mean forgoing some or all of the interest earned on the initial deposit. Make sure you’re comfortable locking up a lot of money before buying a giant CD.

When the economy is at its most unpredictable, you may want to have more flexibility in where you park your money and move around to keep up with changing interest rates. If everything is on one CD, you won’t be able to take advantage of features that other accounts might offer.

Missing out on rising interest rates

In an environment of rising interest rates, if you lock up your money at a fixed rate for months or more, you may be missing out on the potential for better returns. As inflation continues to rise and the Federal Reserve raises the federal funds rate, you may also see interest rates on some savings products rise. However, if you’re already locked into CDs, you won’t be able to take advantage of rising interest rates.

CD rates also tend to lag the rate of inflation, which can cause your locked-in funds to lose purchasing power. Be sure to consider the various options available to you, including CDs, savings accounts, and MMAs, so you can take advantage of the best yields—not just now, but fluctuate over time.

limited insurance coverage

At all FDIC-insured banks and NCUA-insured credit unions, the maximum deposit amount is $250,000 per depositor and per account ownership type. The nature of a giant CD is that it involves putting a lot of money into the account. It’s important to make sure you don’t deposit more money than is covered by federal insurance.

Federal insurance ensures your funds are protected in the event of a bank or credit union failure. While this type of closure doesn’t happen often, it can happen, and it’s best to insure all your funds. If your total savings exceeds $250,000, you can distribute it across multiple financial institutions or account ownership types for comprehensive coverage.

bottom line

Before you open a jumbo CD, compare rates and consider how much you’re willing to lock in at a flat rate for a specified period of time. You don’t want to end up having to withdraw your money early and pay the resulting penalty.

CDs are great for specific targets that don’t require much near-term liquidity, and jumbo CDs are no exception. They don’t quite fit into an emergency fund, but they might fit into something like a vacation fund. Just make sure you don’t exceed your federal insurance limit.

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