Advantages of investing in jumbo certificates (aka jumbo CDs)

If you have a large sum of money sitting in a checking or savings account, it may be more beneficial to consider a certificate instead. Jumbo certificates are similar to regular certificates, except they require a higher investment and most often offer a higher annual percentage yield (APY) in return. Learn what a jumbo certificate is and its advantages, why you should research jumbo certificate rates, and how these rates compare to other investment types.

What is a jumbo certificate?

Jumbo certificates are certificates with a higher minimum required investment and typically a higher rate of return. A certificate is a savings product that earns interest on a set sum for a fixed period of time.

How do jumbo certificates work?

A jumbo certificate works just like a regular certificate, except with higher minimum deposit requirements and typically a higher rate of return. A jumbo certificate pays you a rate of return for depositing your money with a financial institution. You purchase a certificate from a credit union or from a bank with a specific maturity date. You receive the listed return if you leave your funds in the account until the specified date. Certificates are available in different increments, but the more you're willing to deposit, the more you'll typically earn.

Once your jumbo certificate matures, you'll receive your initial deposit back plus interest. Investing more is usually done through a jumbo certificate. While the minimum investing requirements vary depending on the financial institution, it's approximately $75,000 to $100,000.

The average rate of return on both regular certificates and jumbo certificates fluctuates, so it's essential to review current rates before investing. You can find jumbo certificates at most credit unions and banks. Jumbo certificate rates vary depending on the length of the investment.

Advantages of investing in jumbo certificates with high rates

Many individuals, even many companies, take advantage of jumbo certificates. Jumbo certificates with high-interest rates offer many benefits, including:

Higher rate of return

Purchasing a certificate typically qualifies you for a higher rate of return than other investments, including high-interest savings accounts. The rate of return on jumbo certificates is usually even higher than that of a regular certificate. Even better, your return is guaranteed, which isn't the case with other investment types.

Lower risk than other investments

Certificates, in general, carry less risk than other investment types. Unlike other investment tools, your rate of return isn't dependent on market performance. Instead, you receive a set return based on your investment amount and interest rate. Purchasing jumbo certificates can diversify your investment portfolio and help offset other investment types' volatility.

Jumbo certificates are also insured up to $250,000. The National Credit Union Association (NCUA) covers deposits and certificates at credit unions and the Federal Deposit Insurance Corporation (FDIC) covers certificates issued by banks.^*

Flexible investment options

Even though jumbo certificates require you to tie up your money for a specific time, you can choose the timeline that works for you. Jumbo certificates are available in as small of increments as a few months. Most jumbo certificates are available between three months to five years. However, as a general rule, the longer you're willing to tie up your funds, the higher the return you may earn.

A steady rate of interest

Jumbo certificates can offer a steady rate of return, meaning you can benefit from regular monthly payments. This earning potential makes jumbo certificates an excellent option for investors or companies.

Disciplined saving

Certificates require that you keep your money in the account until it matures. While you can withdraw your funds early, you may incur an early withdrawal penalty. This penalty is a reason certificates require more disciplined saving and investing habits, as it discourages early withdrawals.

Disadvantages of certificates

It's also a good idea to be aware of the potential downsides of any investment before going through with it. The possible disadvantages of a jumbo certificate include the following.

• Requires more capital. You typically will only qualify for the higher jumbo certificate returns if you have at least $75,000 or $100,000 to invest.
• Subject to penalties if you withdraw early. Most certificates charge an early withdrawal penalty if you remove your funds before they mature.
• Prone to inflation losses. Certificates may earn a higher rate of return than other investment types, but they don't always outpace inflation.
• Interest rates may fluctuate. Interest rates regularly fluctuate, which could lead to you being locked into a rate as average interest rates increase.
• Opportunity cost. Any time you choose one investment over another, you have the risk of opportunity cost. This term refers to the loss of potential gain from another investment.

Jumbo certificates typically have higher interest rates than other investment types but don't offer the highest rate of return. However, ideal investment portfolios may comprise various investments at different risk levels. A jumbo certificate could be a great way to round out your investment portfolio.

Researching jumbo certificate rates can help you maximize your returns. If you’re ready to save with a certificate, Alliant offers several convenient ways for you to open a regular or jumbo certificate. If you're already an Alliant member, just log in to online banking, select Open a New Account in the left sidebar and follow the prompts. If you're not yet a member, review our Certificates page for steps on how to apply.

Want to learn more money and investing tips? Check out these other articles:

• What is a certificate (CD) account? Discover all you need to know
• Share certificate vs. CD (certificate of deposit)
• NCUA vs. FDIC: When you know how it works, you can "rest insured"

^* Your deposits are federally insured up to $250,000 and backed by the full faith and credit of the United States Government.