Jumbo CDs, Bump Up CDs, and No Penalty Withdrawal CDsFebruary 8th, 2012 by David Waring
Certificates of deposit are available in a number of formats, according to the amount of money you want to deposit, where you think overall interest rates are likely to go, and the freedom you want to withdraw money from your CD without being penalized.
A jumbo CD is a certificate of deposit (CD) with a minimum deposit of $100,000. They offer a low-risk, stable investment for larger investors, usually with higher interest rates than CDs with lower deposits amounts. Jumbo CDs may be non-negotiable and held in the name of the purchaser; or they may be negotiable (which means traded) on the secondary markets, in which case they may be issued in bearer form (a tradable paper document.)
Jumbo CDs are subject to similar conditions as other CDs, a fixed guaranteed return being offered in exchange for leaving the deposit intact for a pre-determined period of time. Given the high amount of deposit however (jumbo CDs in excess of $1,000,000 are also available), they may exceed the maximum amount that can be insured by the FDIC. In this case, an investor would need to look for other insurance solutions for the portion of the jumbo CD deposit and interest payable that is outside the FDIC insurance limit.
Bump up CDs
As an investor, you are allowed to change the interest rate of a bump up CD from its original level to a current (higher) level, at least once during its term. Logically, bump up CDs with longer maturities give you more chance of profiting from increases in interest rates. Some issuing institutions allow you to bump up more than once, and most allow bump ups without extending the term of the CD, although some do not. The potential disadvantage of the bump up CD is that you have to accept a lower initial rate of interest than for comparable non-bump up CDs. If interest rates don’t increase or don’t increase soon enough during the term of your bump up CD, overall yield will not match that of a comparable standard CD.
No Penalty Withdrawal CDs
Banks often count on CD deposits remaining untouched so that they can put the money to work for themselves. For this reason, CDs have traditionally incorporated penalties if an investor wanted to cash them in before their maturity. However, CDs exist for which there is no penalty for withdrawal. There may be conditions attached: for example, maintaining a minimum balance in your certificate of deposit and a maximum number of withdrawals during the term of the CD. No penalty withdrawal CDs may also attract a lower interest rate. What happens to the CD if you reach the maximum number of withdrawals varies from one financial institution to another. Some will maintain the CD in operation, but with a lower interest rate; others will close your account, if no partial withdrawals are permitted.