A certificate of deposit, or CD, is a popular choice for people to save money securely while earning interest. A jumbo CD works like any other CD, but requires a higher minimum deposit. In return for that higher initial deposit, a jumbo CD typically earns a higher interest rate than a traditional CD. Like other CDs, most jumbo CDs have fixed term lengths, during which your interest rate is locked in.
Potential Advantages of Jumbo CDs
If you have a significant amount of money to stash away, a jumbo CD can be a great way to grow your savings. Here are some specific benefits:
- Competitive Return. As discussed previously, a jumbo CD typically provides a higher interest rate than a traditional CD, in return for a higher initial deposit at account opening.
- Safe Investment Option. Like a traditional CD, a jumbo CD carries less risk than traditional investment vehicles like stocks or bonds. As long as you keep your deposit in the CD for the agreed-upon term length, you will earn a guaranteed return with no risk of losing your money. Most jumbo CDs are also FDIC insured. Just be sure that you are opening an account at an FDIC-insured financial institution.
Potential Downsides of Jumbo CDs
While jumbo CDs can be a great avenue for saving money and earning interest, they do have some potential drawbacks, including:
- Lack of Liquidity. Like traditional CDs, once you deposit money into a jumbo CD, it is locked in for the CD’s term. However, because jumbo CDs typically require a significant initial deposit, you are likely to have more money tied up in a jumbo CD than you might with a regular CD. If you withdraw your money from the CD prior to its maturity date, you will most likely incur an early withdrawal penalty fee, which could essentially negate the higher interest rate you were earning.
- Risk of Missing Out on Higher Rates. Having a sizable balance locked up in a jumbo CD could prevent you from taking advantage of more lucrative returns if deposit rates rise. When that money is stuck in a CD you could also miss out on higher returns from other investment options.
Popular Alternatives to Jumbo CDs
Since the main drawback of a jumbo CD is not having access to your sizable balance until the CD matures, you might consider alternative deposit products. There are other “jumbo” offerings that provide a competitive return in exchange for a high account balance, while providing you with more flexibility and liquidity than a jumbo CD. Here are some options to consider:
- Jumbo Savings Account. A jumbo savings account caters to those who have a large amount of money to deposit, but who want access to their funds without incurring penalties. A jumbo savings account typically works like a regular savings account in that you can make deposits at any time and withdraw money at will. However, it’s important to note that most jumbo savings accounts don’t have a fixed, guaranteed rate. In other words, the interest rate on a most jumbo savings accounts can change after account opening. Most jumbo savings accounts also require a specific balance in order to earn interest. So, if your balance falls below a certain threshold, you may stop earning interest, or earn a lower amount of interest than you were previously.
- Jumbo Money Market. A money market account combines many of the features of a savings account and a checking account. Many money market accounts allow for check or debit card transactions, while providing a competitive return on your balance. Similar to a jumbo savings account, a jumbo money market usually requires a higher minimum balance than a regular money market account, and it typically pays a higher interest rate than a regular money market account. Like a jumbo savings account, most money market accounts do not have a fixed, guaranteed rate. Rather, the rate of a money market account can typically change after account opening. That said, some money markets may provide an introductory rate for a specific period of time. Bank5 Connect’s Accelerator Money Market utilizes a variable rate that updates monthly, and is based on the Federal Home Loan Bank of Boston’s one-month rate, providing accountholders with a relevant, competitive rate that is always based on current market conditions.
If you’re looking for a high-interest alternative to a jumbo CD, Bank5 Connect can help. Our Jumbo Savings and Accelerator Money Market accounts provide financial flexibility while rewarding you for a large balance. These accounts offer competitive rates on qualifying balances with no monthly maintenance fees. Plus, at Bank5 Connect all deposit accounts are 100% insured with a combination of FDIC and DIF insurance.
It’s always a good idea to speak with a tax professional or investment advisor before making any major changes to your finances, but knowing that you have some great alternatives to jumbo CDs is a good first step.