What are the features of a jumbo CD and their pros and cons?

Jumbo CD is a good way of investing large sums of money. CD is actually a certificate of deposit with a minimum denomination of around $100,000.  Jumbo CDs are considered to be low risk CDs and stable investment option for large depositors.

Features of Jumbo CD 

These CDs have features like all other general certificate of deposits except that huge amount of investment and transactions are carried out in this case.

1. These CDs are time locked.  The principal amount invested by the investor gets locked up for a decided time. This time, the locking varies from six months to six years. As soon as the period gets over the investor is assured of a sum return at a set percentage.
2. These are low risk investment and generally guarantee a higher return than other CDs. The return gets paid at the end of the maturity tenure.
3. They are insured by FDIC and so an investor can be assured of the return of the principle amount in any case.
4. Certain jumbo CDs are negotiable. This means that the CDs fluctuate in value as per the market interest rate and can be sold on a secondary market.
5. Irrespective of the interest rates that may get lower sometimes, the jumbo CDs always assure the return of the premium amount as well as the interest rate that has been assured. 

Advantages  

1. The investor gets higher return.
2. Since it is FDIC protected so has low risk.
3. A negotiable jumbo CD facilitates cash less transaction if the investor wants to sell them.
4. These CDs are accepted by banks as collateral when applying for loans. 

Disadvantages 

1. These CDs require huge amounts of investments.
2. The time lock feature does not allow the investor to use the money in case of financial crisis.
3. In return of huge interest returns the jumbo CDs do not carry the liquidity like the other general CDs.
4. Withdrawal of the premium amount before the maturity date calls for huge penalty and in some cases the principal gets forfeited.
5. The amount that a person gets after maturity becomes taxable. So, it is not a good way of investment if one wants to save taxes. 

Institutions such as banks and pension funds use Jumbo CDs as cash instruments. Business organizations too use these CDs as collaterals for huge amounts of loans when they need to spread their business. Jumbo CDs are the best investment possible for people having huge amount of cash that can be invested without any need for a particular period of time.