What is a jumbo CD?
A jumbo CD is a certificate of deposit that, traditionally, requires a minimum deposit of $100,000. Some banks and credit unions offer jumbo CDs with lower minimums, such as $25,000. But for most people, regular CDs tend to be a better option since you can avoid the steep deposit requirement and take advantage of high rates available outside of jumbo CDs.
» Skip ahead to a comparison of three banks with high-yield CDs
Regular CD vs. jumbo CD
A jumbo CD requires more money to open than a regular CD, which can have a minimum deposit requirement of, for example, $500 or $5,000. Or even no minimum, especially at some online banks such as Barclays and Capital One 360.
Jumbo CDs tend to have slightly higher interest rates, on average, than a regular CD, but you can generally find CDs with lower minimums that still have some of the best rates.
“Not all banks offer a different rate for jumbo CDs” than for other CDs, says Dana Vas Nunes, director of deposit products at Alliant Credit Union. “If you look at some of the rates offered by the big banks, they’re very tiny regardless of how much you’re depositing with them.”
The better approach to saving at higher rates — at least double the national jumbo rates — is to take advantage of competitive offerings at credit unions and online banks. Here’s an example of three.
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Apart from different rates and minimums, regular and jumbo CDs work similarly. They both keep money locked up for a fixed period, usually from three months to five years. In return for sacrificing access to your funds, you earn an interest rate that is usually higher than that of a regular savings account.
» Want a short-term CD? See our list of the best 1-year rates
Compare CD rates
Here’s a look at the national average rates for jumbo CDs compared to those for regular CDs. The difference in annual percentage yields tends to be less than 0.10%.
|CD term||National jumbo CD rate||National regular CD rate|
|3 months||0.18% APY||0.16% APY|
|6 months||0.29% APY||0.26% APY|
|1 year||0.48% APY||0.44% APY|
|2 years||0.69% APY||0.63% APY|
|3 years||0.84% APY||0.79% APY|
|4 years||0.95% APY||0.90% APY|
|5 years||1.14% APY||1.10% APY|
Historically, jumbo CDs have had higher returns than regular CDs, says Derek Brainard, manager of education services at AccessLex Institute, a nonprofit helping law students figure out their finances. “During the recession, however, the spread between regular CDs and jumbo CDs narrowed” for rates at similar term lengths.
When to consider CDs — and maybe jumbo CDs
CDs give some of the highest returns for deposit accounts, and they tend to work best for specific short-term goals, such as a wedding or down payment for a home a few years down the road. (To help save for goals, look at the best five-year CD rates this month.)
But the federal deposit insurance limit for a bank account is $250,000. If you want the assurance that you will get all your money back if your bank or credit union fails, it’s a good idea to keep your deposit at or below that limit. To make sure your money is protected, you can also open a joint account, which insures $250,000 per co-owner, or consider multiple CDs from different banks.
If you have enough savings for a jumbo CD, compare rates across both jumbo and regular CDs. In general, bigger CD minimums don’t mean higher rates.
Carrie Houchins-Witt, a certified financial planner at her firm in Coralville, Iowa, sees some clients in retirement who prefer jumbo CDs because they don’t want the risk that comes with investing money in the stock market. But if you can tolerate risk and want higher returns, opening a brokerage account can be a better option.