What is a jumbo CD, and should I open one?

Anytime you shop around for CDs, you’ll notice that, in addition to their menu of standard options, some banks and credit unions also offer an array of jumbo certificates. What are these products and do they follow different rules than regular CDs?

As you can guess, a jumbo CD simply requires a much larger deposit than a standard CD. Traditionally, the threshold for jumbo CDs has been $100,000. But with no formal rules on the minimum, some financial institutions have taken marketing liberties to apply the term to $50,000 or even $25,000 CDs.

Also historically, jumbo CDs paid higher rates than standard CDs. But ever since deposit rates plummeted and then stagnated after the Great Recession, the spread between standard and jumbo rates has greatly compressed, to the point that jumbo CDs generally pay only a tiny fraction more than regular certificates.

Everything else about jumbo CDs works the same as standard CDs. A fixed interest rate and maturity term are specified at the outset, and the account must stay funded for the full duration. If cashed out early, a penalty will be applied, and whether this is the same as the penalty for regular CDs will depend on the bank.

So if you have a large sum to save in a deposit account, should you open a jumbo CD?

As always, your best bet is to simply shop for the highest rate you can earn, at an institution you feel comfortable with, for the amount you want to invest. Whether your top find is a jumbo CD or a standard one really makes no difference, since these are just marketing names.

In fact, you may be able to maximize your return and your flexibility (should you need the cash early) by opening multiple smaller CDs instead of one large certificate.