A jumbo certificate of deposit generally pays a higher annual percentage yield than a traditional CD, in exchange for maintaining a fatter minimum balance — $100,000 versus $500, for example. As a result, the holder of a jumbo CD may be able to pile up much more interest income than the holder of a traditional CD.
Of course, not everyone can come up with tens of thousands of dollars to deposit in a jumbo CD. And if they can, they typically must keep their money in the CD for the agreed-upon term or face a penalty for withdrawing cash before the term expires. Learn more about how jumbo CDs work and how they compare to traditional CDs.
[Read: Best CD Rates.]
What Is a Jumbo CD?
Think of a jumbo CD as a regular CD on steroids.
Generally, a jumbo CD requires a much higher minimum balance — normally $100,000 — than a traditional CD. A traditional CD might require a minimum balance of $1,000 or $2,500. In return for depositing more money, a jumbo CD typically pays a higher interest rate than a traditional CD.
You can open a jumbo CD for a set number of months or years, just as you would with a regular CD. At the end of the term you can withdraw your starting balance, plus the interest you earned. With both regular and jumbo CDs, you risk sacrificing the interest income you earned if you withdraw money before the CD term ends.
Regular CD vs. Jumbo CD
Here are some of the key differences between a regular CD and a jumbo CD:
— Minimum balance. As the table below indicates, minimum balances for jumbo CDs can range from $25,000 to $100,000. By comparison, a regular CD might come with a lower minimum balance of $500 or $1,000.
— APY. When an account holder commits to a higher minimum balance for a jumbo CD, they’re often rewarded with a higher annual percentage yield. But the difference between the two APYs might be minimal, especially in today’s high interest rate environment. At Navy Federal Credit Union, for instance, the APY for a traditional 12-month CD is 4.80%, barely below the 4.85% APY for a jumbo 12-month CD.
— Flexible terms. Generally, traditional CDs come with terms that last a few months or several years. But in the case of jumbo CDs, you may be able to find one with a term that lasts days. KeyBank, for example, provides jumbo CDs with terms ranging from seven days to 120 months.
— Availability. Some financial institutions that pay high APYs for regular CDs might not offer jumbo CDs. That’s the case at online-only Ally Bank, where the APY for a 12-month traditional CD is an attractive 4.50% with no minimum balance required. Ally doesn’t include jumbo CDs in its savings lineup.
See how regular CDs and jumbo CDs compare at five financial institutions.
Jumbo CD Pros and Cons
As with any type of savings account, a jumbo CD comes with pros and cons.
[Read: Best Savings Accounts.]
Is It Worth It to Get a Jumbo CD?
A jumbo CD may be worth it if you can afford to part with a big sum of money for days, months or years. If you’re able to park a large stash of cash for a potentially long period with no need for immediate access to the funds, you might reap a considerable pile of interest income. However, a jumbo CD is not the right option if you can’t easily come up with the hefty minimum deposit or you might need the money before the CD term is up.
In many cases you’ll be able to find a traditional CD with a much lower minimum deposit and a competitive APY.
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What Is a Jumbo CD? originally appeared on usnews.com
Update 04/30/24: This story was published at an earlier date and has been updated with new information.
