A jumbo certificate of deposit (CD) is a type of savings account that has a higher minimum required initial deposit amount than a regular CD. Jumbo CDs generally require a deposit of $100,000, and they pay a higher interest rate to account owners in return for this higher initial deposit.
Certificates of deposit are savings accounts where the account owner gives up access to their funds for a specified period of time, and earns interest in return for locking up their money. The interest rate may be fixed or variable depending on the particular CD. At the end of the term, known as the maturity date, the account owner receives their initial deposit plus the earned interest.
Is a jumbo CD right for you? Here’s what you need to know about how jumbo certificates of deposit work, and the pros and cons of this type of account.
What Is a Jumbo Certificate of Deposit?
You’re probably familiar with the traditional certificate of deposit, or CD. These accounts are similar to savings accounts, but they pay higher interest rates in exchange for certain restrictions. Generally, most CDs have a maturity date between three months and five years. Since CDs require that funds are unavailable to the account owner during the term, they pay higher rates than other types of savings and interest-bearing checking accounts.
Unlike a regular CD, jumbo CDs generally require investors to deposit at least $100,000 when they first open their account. There are some jumbo CDs that have lower entry requirements of, say, $50,000; these are typically offered by credit unions and smaller banks.
Investors looking to open a smaller CD account are generally better off opening a regular CD. The rates can be just as good as a jumbo CD, but without the steep initial deposit requirements.
Regular vs Jumbo CD
Here’s what you need to know about the similarities and differences between investing in ordinary CDs and jumbo CDs.
Similarities
• What is a certificate of deposit vs. a savings account? Regular and jumbo CDs are savings-like accounts that require investors to lock up their funds for a specified period of time in exchange for a higher rate of interest than a traditional savings account.
• Both types of accounts can be set up for shorter and longer terms, typically from three months to five years.
• If an investor needs their money before the CD’s term is complete, they will likely pay a penalty on the early withdrawal.
Differences
• Jumbo CDs have higher entry requirements than regular CDs. Regular CDs typically have an initial minimum deposit requirement of less than $5,000, and some have no requirement at all. Jumbo CDs typically require a $100,000 deposit.
• Jumbo CDs typically have somewhat higher interest rates than regular CDs. However, some regular CDs have equal or better rates than jumbo CDs. Usually large banks have some of the best CD interest rates.
• Ordinary CDs are insured by the FDIC up to $250,000, as are jumbo CDs — but any amount in a jumbo CD above $250,000 is not FDIC-insured and subject to risk of loss.
• Regular CDs tend to be more attractive to retail investors; jumbo CDs are geared toward large institutional investors.
Ordinary CDs vs Jumbo CDs
| Similarities | Differences |
|---|---|
| Investors deposit funds for a fixed period in exchange for a higher interest rate than a traditional savings account. | Jumbo CDs require a $100,000 minimum deposit vs. $5,000 or less for a CD. |
| CD terms are typically three months to five years, but can vary. | Jumbo CDs generally have somewhat higher interest rates. |
| Early withdrawals from any CD typically trigger a penalty. | Both types of CD are FDIC-insured up to $250,000, but amounts in a jumbo CD above that aren’t covered. |
| Regular CDs are geared toward retail investors; jumbo CDs to institutional investors. |
Advantages of Jumbo CDs
Jumbo CDs offer several advantages for investors looking to buy into a safe savings account with a fixed rate of return.
Steady Rate of Interest
Because jumbo CDs earn a steady interest rate over a fixed period of time and are fairly safe investments (i.e. your money is FDIC-insured up to $250,000), they can be a good way to save up for a longer-term financial goal, such as buying a home or saving for a wedding.
Higher Interest Rate Than Traditional CDs
Jumbo CDs tend to pay higher interest rates than regular CDs and savings accounts. National averages show that annual percentage yields for jumbo CDs tend to be about one-hundredth of a percentage point larger than regular CD yields, which isn’t much — but can add up over time.
Steady Interest Can Partly Offset Market Risk
By holding some funds in a jumbo CD that earns a steady rate, it’s possible to offset the potential volatility in other parts of your investment portfolio. Also, although interest rates may not be super high, the compound interest on the large amounts invested in a jumbo CD can add significantly to investors’ earnings (see example below).
Insured up to $250,000 per Account
The FDIC or the NCUA insure CD accounts for up to $250,000, making jumbo CDs one of the safest types of investments.
Those who want to deposit more than $250,000 might consider opening a joint CD account that allows $250,000 per account owner, or they can open different CD accounts with multiple banks. Jumbo CDs are popular with retirees who don’t want to put all their money into the stock market. On the downside, jumbo CDs tend to earn lower returns over time than stocks.
Disadvantages of Jumbo CDs
Although there are several reasons jumbo CDs can be good investments, they also come with some downsides. The biggest buyers of jumbo CDs are institutional investors looking for safe investments with fixed returns. Sometimes these institutional investors put money into a CD that they plan to invest somewhere else but they want to earn interest on it while they wait for that next investment. Retail investors typically look for CDs with lower entry requirements.
Lower Return Than Many Other Fixed-Rate Investments
Jumbo CDs are safe fixed-rate investments, but they have high minimum balance requirements and pay out lower interest rates than other types of fixed-rate investments like bonds.
Interest Rate Risk
Investors face the potential risk of interest rates going up after they buy a CD. If this happens they may miss out on the opportunity to earn those higher rates.
May Not Keep Up With Inflation
Jumbo CDs pay higher interest rates than traditional savings accounts, but the rate of these CDs may not be that high and therefore they may not keep up with the pace of inflation. The cost of living may rise more quickly than the return provided by the CD.
It may help investors to buy into jumbo CDs with longer terms, since those pay out higher interest rates — but the tradeoff there is that your money is locked up for an even longer period.
Recommended: How to Protect Money Against Inflation
Early Withdrawals Will Trigger a Penalty
When an investor puts money into a jumbo CD, they cannot access those funds until the maturity date. If they do want to access the funds they will have to pay an early withdrawal penalty. Each bank has different penalties for early withdrawal, but there are also no-penalty CDs available, so it’s important for investors to consider their individual situation and look into their options to avoid paying fees.
Reinvestment Rate Risk
If interest rates go down during the term of the jumbo CD, then the investor might struggle to find a new investment that provides a similar rate when their jumbo CD reaches its maturity date.
Jumbo CD Example
Interest rates for jumbo CDs are always changing and they can be different in different regions, but below are two examples of how a jumbo CD might be structured:
• An investor buys a $100,000 jumbo CD from Bank A. It has a nine-month term and pays 1.5% interest. When the investor withdraws the funds at the maturity date, they’ll receive $101,122.90.
• Another investor buys a $200,000 jumbo CD from Bank B, with an 18-month term and 2.00% interest. At the maturity date, the investor will get $206,029.90.
The Takeaway
Jumbo CDs are savings accounts with high minimum deposit requirements — typically $100,000 — that pay higher interest rates than regular CDs. These are popular with large institutional investors such as banks and corporations. While they are similar to regular CDs in some ways — your money is unavailable until the maturity date; early withdrawals can trigger a penalty — jumbo CDs may come with more risks. For example, only the first $250,000 of your money is insured. And by locking up your money at one fixed rate, you may lose out if interest rates rise.
If you’re ready to open a savings account, one easy way is through SoFi’s online banking app. You can sign up for an account right from your phone and pay zero account fees — and if you qualify and use direct deposit, you can earn a competitive APY. Open your Checking and Savings today.
FAQ
What is the range of jumbo CD rates?
Jumbo CD rates are between 0.40% and 2.1% as of April 25, 2022. The highest rates often depend on the length of the term.
How much money is in a jumbo CD?
Jumbo CDs typically require a minimum deposit of $100,000.
Are jumbo CDs negotiable?
Jumbo CDs are usually negotiable, meaning they can be sold on a secondary market.
Photo credit: iStock/Andrii Yalanskyi
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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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