Giant CDs are certificates of deposit with a minimum of $100,000 and are considered low-risk investments for large investors. Jumbo CDs have the same features as traditional CDs, but with higher returns for longer maturity periods. They are FDIC insured up to $100,000 and are mainly used by institutional investors and high net worth individuals. Withdrawing early results in penalties.
A giant CD is a certificate of deposit in a very large denomination, usually with a minimum of $100,000. Also called tradable certificates of deposit, these large investments are considered stable, low-risk investments for large investors.
A jumbo CD has the same basic features as a traditional certificate of deposit. They are considered “time deposits” because they lock in an investor’s capital for a set period of time, typically ranging from three months to six years. In exchange for tying up the principal, the investor earns a guaranteed return at a fixed percentage rate set at the time of purchase. This refund is paid when the CD matures or reaches the end of the predetermined time period.
Like a traditional CD, a jumbo CD is considered a very low-risk investment. Certificates of Deposit are FDIC insured and therefore guarantee repayment of principal. However, FDIC insurance will only cover up to $100,000 for this type of investment, and therefore most giant CDs and any returns are not FDIC insured. This caveat inherently increases your investment risk to a level greater than that of a traditional CD.
As with smaller denomination CDs, a giant CD can generally offer a higher rate of return than comparable cash investments, such as money market accounts or savings accounts. The throughput rate of the certificate directly correlates to the amount of time the principal remains locked. The longer a CD takes to mature, the higher the rate of return. For example, a six-year CD will have a higher interest rate than the same amount of principal locked up in a six-month CD. Because of the commitment of such large amounts of money, a giant CD rate of return is better than a smaller CD with the maturity date.
In exchange for a slightly higher rate of return, certificates of deposit do not have the liquidity that other savings vehicles have. Withdrawing early principal results in penalties or the loss of a portion of the returns, and those penalties can be particularly severe with a giant CD.
Due to the large capital involved, giant CDs tend to be cash instruments for institutional investors such as banks or pension funds, both organizations with significant capital seeking stable investments. A giant CD can also be valuable to high net worth individuals with large cash holdings who are looking for a guaranteed return without needing to access short-term capital.
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