Advantages and disadvantages of jumbo CD

The Jumbo certificates of deposit are high value certificates of deposits that are invested by the customers for a particular period of time in return for higher interest rates and returns. The jumbo CDs require higher amount of deposits which is around $100000. The interest rates offered on the amount varies from one bank to the other.

Advantages of Jumbo CD 

The Jumbo CDs are low risk investment options

Money market and other mutual funds have higher risks as they are directly connected to the indexes of the share market. If the share market performs well then these will show high yield or else the investor is bound to face huge losses. On the basis of the recent FDIC regulations jumbo CDs are covered by the FDIC for a value of $250000. This ensures that the investors get back their principal amount.

Jumbo CDs yield higher rate of returns than money markets

This is because the jumbo CDs have higher investments as compared to money market and savings funds. The rate of return from these CDs is directly related to the amount of principal and the time period for which it is kept locked. The longer the locking period, greater is the rate of return.

Relatively stable investment option

Since the minimum amount that could be deposited in a Jumbo CD is around $100000, so the large principal involved provide the basic for cash resources to pension funds and other financial institutes. They provide an opportunity for stable investment plans.  Jumbo CDs are also helpful in starting off new businesses.

Disadvantages of Jumbo CD 

The Jumbo CDs have higher minimum denominations

This makes the CDs very costly and everyone cannot afford to invest such higher premium amounts.

The jumbo CDs are time locked

When invested these high end values cannot be withdrawn before the maturity time as this will call for penalties. In many banks the penalties are levied in the form of forfeiting a part of the money invested. The rate of interest might also get reduced substantially.

The jumbo CDs cannot be accessed at the time of need

Although they yield higher returns, they lack liquidity. You can withdraw funds from the CD once they have been locked in for a particular time period.

Entire amount not covered under FDIC insurance

Since the premium limits are so high therefore the FDIC covers for only $250000 of the total deposit. The rest principal amount is not regulated or covered by FDIC.

Long term returns

Since these CDs are time regulated, huge amounts of funds remain locked for longer time to earn higher yields.