Avoid jumbo CDs

If you’re comparing CD rates, chances are you’ve seen the word “jumbo” pop up during your online search. A jumbo CD is pretty much what it sounds like: a certificate of deposit with a jumbo-sized amount of cash. A standard jumbo CD requires a minimum deposit of $100,000. In today’s post, I’m going to take a closer look at jumbo CDs and why this type of account is outdated.

The history of jumbo CDs

Before the rise of Internet-only banks, there was some incentive to open a jumbo CD. Some financial institutions offered much higher rates to depositors who were willing to lock away such large amounts of cash for extended periods of time. However, online banks have begun offering above-average rates on CDs of all sizes. Basically, jumbo CD investors don’t have much of an advantage over investors who can only put away a few thousands bucks.

Alternatives to jumbo CD investing

In today’s market, I don’t know many savvy investors who are putting $100,000 in CDs. Sure, they’re good low-risk investments, but the sluggish interest rates make earning interest pretty challenging. If you are looking to put away a good chunk of cash, CD laddering is an attractive strategy that offers access to the best interest rates available with the benefit of increased liquidity. Think about it: if you found yourself in need of some cash as a jumbo CD investor and removed some funds early, you would pay a huge price for your early withdrawal penalty. As a laddering investor, you might only need to remove cash from one of your CDs and come away with a much less severe penalty payment.

The market for CD investors has changed dramatically over the past five years as rates have fallen and banks have introduced new types of CDs. How have your investing strategies changed with the times?