Everything you want to know about jumbo CD
Let us first understand what is a CD or certificate of deposit. A certificate of deposit is a financial product offered to the consumers by the banks or the various financial institutions in the form of time deposit. The Jumbo CD is a kind of high yielding certificate of deposit with a principal deposit amount being $100,000 or more. The rate of interest is adjusted weekly as per the rates offered in the money market. A Jumbo CD is a negotiable instrument and can be transferred to a different person before the completion of its maturity period. However, nowadays many Jumbo CDs are not negotiable.
Due to the high value involved in taking a Jumbo CD the main clientele for it are the corporations, the pension fund, and various financial institutions seeking higher market return in a short term period.
Functions of a Jumbo CD
A Jumbo CD is a time bound certificate of deposit, which attracts a penalty if liquidated before its maturity period. The rate of interest is higher than a normal Certificate of deposit due to its high principal deposit amount. One cannot withdraw the funds from Jumbo CD before the completion of the maturity period, which is pre-determined.
The time period
The time period for which a certificate of deposit is taken is directly related to the interest earned by it. A Jumbo CD offers better interest rates than a regular savings account or a normal certificate of deposit, due to its high value. Depending on the length of the deposit, long term or short term, the rates vary.
The benefits of taking a jumbo CD
The main benefit of taking a jumbo CD is the attractive interest rates offered due to its financial size. As the certificate of deposit is time bound the account holder is protected against rate fluctuations. Also since a huge amount is involved the investor is in a benefitting position to bargain a good interest rate and services from the bank or financial institution.
The features of a Jumbo CD
A Jumbo CD cannot be withdrawn before the maturity period. It is a negotiable instrument and hence can be transferred or sold to a different owner. The Federal deposit Insurance Corporation provides insurance for such certificate of deposit but if the amount of the deposit is more than $100,000, the insurance cover is not available.
However, before investing such a huge sum of money an investor should take into account the fact that the investor does not need to withdraw the money in the near future. One should look at the various options available in the market before investing in a Jumbo CD. The investor should keep in mind that although a high market rate is offered in comparison to a savings or a normal FD account, a Jumbo CD is a conservative type of a savings option and would relatively give a conservative yield than the other options like the equity market or the mutual funds.
