When some of us first hear about a jumbo CD we may get a mental picture of compact disc packed full of great music. In fact, this type of CD actually refers to ‘certificates of deposit‘ and a jumbo one of these means that it involves a very large denomination. In most cases this will be denominations greater than $100,000. This type of certificate of deposit is usually considered to be a low risk investment.
How Does a Jumbo CD Work?
In many ways this type of CD is similar to other types of certificate of deposit. The money used in the investment will be tied up for a predetermined period of time and this is why it can sometimes be referred to as a ‘time deposit‘. The time period for this type of investment can vary greatly. It can be as little as 3 months or as much as 6 years. At the end of the period where the money has been tied up the investor will be guaranteed a certain return. This is what makes these investments so appealing — they are low risk and provide reasonable rewards.
The Jumbo CD can be a little riskier than the standard certificate of deposit. The reason for this is that only investments lower than $100,000 will be insured by the FDIC. The fact that these deposits are above this threshold means that they are not covered by this assurance. Comparatively speaking though, it is still a much safer investment than a lot of other options out there.
Why Choose a Jumbo CD?
If you have a large amount of money to invest then a jumbo certificate of deposit can be a good option. It offers a good rate of interest; a lot more than what you would expect to get with savings or other types of account. Of course you will need to be sure that you will be able to leave the money in the account for the agreed upon time. If you want to make the most money from this type of investment you have to be prepared to lose control of this money for a long time. The longer you agree to invest it for the more money you will make on the transaction.
The benefit of choosing a jumbo certificate of deposit over a more traditional certificate of deposit is that you will make more money over the same time period. Investing such a large sum of money is not for everyone though, and a lot of us don’t like to have money tied up in this way. It is possible to cash in a jumbo certificate early but this will mean not going the expected return on the investment.
Jumbo CDs are only one option for people who have a large sum of money that they want to invest. It will not bring as large a return as more riskier ventures, but it is probably better than just keeping money in the bank.
