Advantages & Disadvantages of a Jumbo CD

You are concerned not only about the financial health of this country, but your personal finances as well. After working hard, scrimping and saving you have amassed quite a fortune that hovers well into the 6-digit range. That money is for your retirement and your personal goal was to kick back in style and comfort. Investing in a jumbo CD or two may be an excellent choice for your strategy as long as the advantages outweigh the disadvantages of investing in a jumbo CD.

Like all certificate of deposit investments, jumbos CDs are “timed deposits.” Because a rate of return is guaranteed for investing the money for a specific period of time, the investor is promised a certain rate of return. The rate of return will be higher based on a longer-term investment. Those investment periods can range between 3 months to 6 years.

The advantages of jumbo CDs are that they are extremely low risk investment options. Due to recent changes in FDIC insurance protection provisions, CDs are protected up to $250,000, until January 2010, thus making the principal extremely safe. Based on the length of investment time, you can earn a healthy rate of guaranteed return for your investment.

The main disadvantage of investing into a jumbo CD is your money can be tied up for up to 6 years, making it a non-liquid asset. If you try to access the money in your jumbo CD prior to the maturity date, you will have to pay a fee or penalty. Many times, this penalty comes in the guise of forfeiting a certain amount of earned interest. Additionally, the rate of return is substantially lower than opting into riskier investments.

More from Your Money

When it comes to investing wisely, consumers like yourself need to weigh the advantages and disadvantages for any financial opportunity. If you want to approach your portfolio conservatively, a jumbo CD is an extremely safe way to invest. If your goal is to ensure the safety of the principal and can do without accessing your money for a period of time, a jumbo CD may be right for you.


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