Jumbo CD Accounts – What Exactly are They?

You mayt have heard about callable CDs. A callable CD is one that a bank may “call” in sooner that its maturity date. Now, we will discuss the details about Jumbo CDs. When the deposits are large, mainly greater than $100,000, the CDs are referred to as Jumbo certificates of deposits. In every other way they are the same as a regular certificate of deposit, except for the minimum $100,000 deposit.

Initially the Jumbo CDs maximum coverage was $100,000, like regular deposits, but since the FDIC’s increased insurance coverage to $250,000, the maximum for the Jumbo CDs has changed. If you owned a $150,000 Jumbo CD, only $100,000 would be FDIC insured. The remaining $50,000 would not be covered and may be lost in the event of a bank failure.

What is the importance of Jumbo CDs? Their interest rates were higher than regular CDs, but that has changed since more people are using online banks, and the rates are now smaller. Looking at the listing of the best rates in CDs, and looking at all products’ Jumbo rates, you will notice that their rates are only slightly better than regular CD rates. At Aurora as of 4/5/2010, rates on a 1-year CD was 1.55% as compared to 1.58% on a 1-year Jumbo CD. There is no premium offer of a Jumbo CD at Ally Bank.

You may ask if Jumbo CDs make sense to purchase. I do not believe so. Up to 10 years ago, you had to go to a bank to complete paperwork to open a CD. These days the same can be completed in minutes. You gain flexibility for yourself when you create one CD. In the situation arose, and you needed some quick cash, you could cash one $1,000 CD of the 5 $1,000 CDs you previously opened. The penalty would be assessed on $1,000, and not the $5,000, and in addition interest will continue to accrue on the balance.

Jumbo CDs are no longer effective, they were useful only in the past.