Must-Know Truths About Jumbo CDs

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Jumbo CDs

When you’re looking for new investments for your future, the options are endless. You’ll find a variety of deposit accounts, jumbo CDs, and even money market accounts that will allow you some flexibility for your investment. As you’re looking to build your future, it may seem like the options are overwhelming. However, with a little knowledge in your back pocket, you can take the stress and anxiety out of making wise investments. 

Learning the truth about a jumbo CD and how you can benefit from it is critical to making a smart investment move. Discover below the many tips and ideas behind this deposit account and what you need to know before you decide which account is right for you. Whether you’re a first-time investor or you’re a seasoned professional, you’ll find this information helpful.

What is a Jumbo CD?

A jumbo CD is a deposit account that requires a much larger initial deposit than most other products of the type. You’ll find that most of these accounts need at least $100,000 to open. These deposit products also provide a much higher return on investment than regular CD or other savings accounts offer. The higher rates and more significant amounts due mean that your money is working for you while you sit back and let it. 

When it comes to the length of time that your money is tied up, that will vary on the term you decide. There are many options available for a jumbo CD, including anywhere from a year to five years total. Some of them only have terms for a few days, depending on when you need the money returned and the purpose for which you’re using it. You’ll find that the longer you put your money in the account for, the higher your rate is typically going to be.

What is a Jumbo IRA CD?

As you’re planning for retirement, you’ll be hearing many terms you might be unfamiliar with. For example, a jumbo IRA CD is simply a jumbo CD used for your retirement purposes. Using this as an individual retirement account, you have control over how your assets get handled when you retire. The CD also gives you the freedom to know where your money is invested. Not all retirement accounts are created equal, and therefore, you must know where you’re putting your money. 

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Advantages of This Deposit Account

Putting your money in a jumbo CD for your retirement means you do not have to be concerned if the market dives. Your money is safe, as it is not like putting it in the stock market. Your money is also insured up to $250,000 when you use an FDIC financial institution. 

How Jumbo CD Deposit Accounts Work

When you’re interested in a jumbo certificate of deposit, you need to understand how the CD works to make informed decisions on if it is right for you. We’ve already mentioned the more significant amount of money you need to open the account compared to your regular CD or money market accounts. Other than the large deposit, it works as any other CD would. You choose a term that fits your needs, some as long as five years, and then your money sits in the account working for you. With jumbo CDs, you’ll find the rates are typically more than you would find with a smaller account, and the longer term helps to increase rates as well. Once your money is in, you leave it there as it is growing and making cash for you.

Advantages and Disadvantages of a Jumbo CD

As with all types of savings account options, jumbo CDs have both advantages and disadvantages to them. You must understand both sides when you’re considering this deposit option. You must know what to expect, where fees come from, and how to make the most of this savings account for your retirement or future goals.

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Advantages of Jumbo CDs

  • One of the biggest perks to this type of account is that you’re going to make more money on the cash you deposit than the smaller CD account types.
  • In terms of risk assessment, these are very low-risk investments for you to use. Your money is insured when you use an FDIC institution, so there’s a minimal risk at all of losing what you invest.
  • While most terms are longer with these CDs, there are shorter terms available to help you build income quickly when you want to use the money. For example, if you are making a large purchase or investing in a business, you can have the money working in a short-term jumbo CD before the investment.
  • These items can also be used as collateral when you want to get a loan.

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Disadvantages of Jumbo CDs

  • A significant drawback to these, as with regular CD accounts, is that the money is tied up until the day it matures. That means you can’t have access to it as you would with a money market until the day of maturity.
  • Inflation can affect these rates and cause you to earn less than you might have in other accounts.
  • Penalties are charged, and they are quite large when you try to take the money out early. 

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Jumbo CDs

Are There Better Investment Options?

The term “better” is truly in the matter of what you want your money to do for you. There are several investment options available to you to help you make the right choice for your future. However, deciding what is best for you can take a little bit of research. 

For example, there are some excellent money market accounts out there that you could use and have more liquidity to your finances than with the jumbo CDs. These will allow you to access your money more easily and not penalize you if you should need to get cash out. There are also savings accounts for your money to collect interest on, while still being available to you. However, these accounts are not going to earn as much as you might want them to.

If you have a large deposit and you are sure you won’t need access to it for a few years, then definitely consider the jumbo CDs over the other investment accounts.

If I Withdraw Money Early, Am I Going to Have a Penalty?

The short answer is yes. The penalties charged will depend on how early in the CD term you’re withdrawing the money. Early withdrawal can have quite high fines to pay, which can sometimes dip into your original investment. You shouldn’t take out the money unless it is unavoidable when you put your cash in this type of account.

The Best Jumbo CD Rates Available

Finding the best jumbo CD rates out there is as simple as researching online. There are several options you can take advantage of, and for some, you don’t even have to leave the comfort of your home. Online banking has become a massive factor in the rate drive these days. As many banks only provide online services, you may find more competitive rates when it comes to your business. 

Rates right now are anywhere from .900% for a one-month term up to 2.6000% on a five-year term for your jumbo CD. The rate you receive may fluctuate from these, but it is going to be determined by the amount of money and how long you want to open the account.

Jumbo CD’s for Retirement Building

You must start saving for retirement as early on as you can. Jumbo CDs are a good investment if you have a large sum of money you want to set aside for retirement, future college plans, or whatever the case may be. The earlier you start saving, the more you’ll have when you’re ready to leave working full-time behind you. It is vital that you look at a variety of ways to save up for your golden years and that you have enough to sit back and enjoy what you want to. These are a great start on planning for those exciting years.

How Old Should You Be to Invest In CD Accounts?

You can start as young as 18 years old in investing in this type of account. Some parents use these to save money for their child and will have it in a minor account. A child cannot access it until they are at least 18, but you can save money from a very young age.

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Can I Convert My Simple IRA to a CD?

A brief response to that question is: absolutely, yes. However, it is always wise to talk with a tax advisor before changing anything you have with your retirement accounts. You can transfer your IRA into a jumbo CD and perhaps get a better rate for it. You need to make sure you avoid any tax penalties and work with a professional to do it correctly.

What Happens When My CD Term is Up?

When your jumbo CD has reached maturity, you have a few options you can choose to utilize your money. You can do nothing for a bit, and the money will sit there, but it will not earn as high an interest rate as it was before. You can choose to roll the money into another CD for a different term. Complete withdrawal is now possible without any penalties, as well. 

The choice is up to you on how you want to use your money when the maturity comes up. This is a great time to research and find the best rates or another type of account that may work for this time in your life.

Is a Jumbo CD Better than a Money Market Account?

To answer this question, you must consider what you need or want to do with your money. If you need liquid access to the money, then a money market account may be a better option for you. However, if you’re sure that you won’t need access to it, you can undoubtedly get a higher rate with the jumbo CD option. You need to consider what you want your money to do for you, how long you can tie the money up, and what you might use the money for in the future. 

What type of investment account fits your needs right now? Tell us in the comments below if you have experience with these deposit accounts!

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