What is a Jumbo CD?

M. Garcia

A jumbo CD is a certificate of deposit in a very large denomination, usually at a minimum of $100,000. Also called negotiable certificates of deposit, these large investments are considered low-risk, stable investments for large investors.

Certificate of deposit accounts -- commonly called CDs -- require letting a bank hold a certain amount of money over a period of months or years.
Certificate of deposit accounts -- commonly called CDs -- require letting a bank hold a certain amount of money over a period of months or years.

A jumbo CD has the same basic characteristics as a traditional certificate of deposit. They are considered "time deposits" because they lock up an investor's principal for a set time period, typically ranging from three months to six years. In exchange for tying up principal, the investor earns a guaranteed return at a set percentage rate locked in at the time of purchase. This return is payable when the CD matures, or reaches the end of the predetermined time period.

Like a traditional CD, a jumbo CD is considered a very low risk investment. Certificates of deposit are FDIC-insured, and therefore guarantee a return of principal. FDIC insurance, however, will only cover up to $100,000 for this type of investment, and therefore most jumbo CDs and any returns are not FDIC-insured. This caveat inherently raises their investment risk to higher than that of a traditional CD.

As with smaller denomination CDs, a jumbo CD can typically deliver a higher rate of return than comparable cash investments such as money market accounts or savings accounts. The certificate rate of return directly correlates to the amount of time that the principal remains locked. The longer that it takes a CD to mature, the higher the rate of return. For example, a six-year CD will carry a higher interest rate than the same amount of principal locked in a six-month CD. Due to the commitment of such large amounts of money, a jumbo CD rate of return is better than that of a smaller CD with the maturity date.

In exchange for a slightly higher rate of return,certificates of deposit do not have the liquidity that other savings vehicles carry. Withdrawing principal early results in penalty fees or a forfeiture of a portion of returns, and those penalties can be particularly severe with a jumbo CD.

Due to the large principal involved, jumbo CDs tend to be cash instruments for institutional investors such as banks or pension funds, both organizations with significant capital seeking stable investments. A jumbo CD can also be of value to high-net worth individuals with large cash holdings looking for a guaranteed return without need to access principal in the short term.

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Discussion Comments


Moldova- I agree that Bankrate offers the best CD rates. I always go there when I want to know the average mortgage rates as well.

Usually the credit unions always offer the best certificate of deposit rates.


I just want to add that Bankrate offers the best CD rates locally and nationally. For example, a jumbo CD for one year offers an annual percentage yield range of .55% to 1.55% nationally.

For a three year jumbo CD the annual percentage yield range is 1.25% to 2.5%, and for a five year jumbo CD, the annual percentage yield is 1.31% to 1.50% nationally.

Sometimes it is better to consider other investments like municipal bonds.

Municipal bonds pay biannual tax-free interest payments, which on a $100,000, could be $1,500 to $2,500 every six months.

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