A jumbo CD is a certificate of deposit in a very large amount, often at a minimum of $100,000. It is also known as negotiable certificates of deposit; these large investments are considered low risk, stable investments for large investors.

A jumbo CD has the same basic characteristics as an ordinary certificate of deposit. They are considered ‘time deposits’ because they lock up an investor’s money for a set period of time, typically ranging from months to six years. In exchange for tying up money, the investor earns a guaranteed return at a set percentage rate agreed at the time of purchase. This return is payable when the CD matures, or reaches the end of the agreed time period.

Like the traditional CD, a jumbo CD is seen as a very low risk investment. Certificate of deposits are FDIC insured and therefore guarantee a return of principal. The FDIC insurance, however, will only cover up to $100,000 for this type of investment, and therefore most jumbo CDs and any returns are not FDIC insured. This makes jumbo CDs higher in the investment risk than the traditional CD accounts.

As with a smaller amount CDs, a jumbo CD can typically deliver a higher rate of return than comparable cash investments such as money market accounts or savings accounts. The certificate rate of return directly shows a relationship to the amount of time that the principal remains locked. The longer it takes a CD to mature, the higher the rate of return. For instance, a six-year CD will carry a higher interest rate than the same amount of principal locked in a six-month CD. Due to the commitment of such large amounts of money, a jumbo CD rate return is better than that of a smaller CD with the maturity date.

In exchange for a slightly higher rate of return, certificates of deposits do not have the liquidity that other savings avenues carry. Withdrawing principal early, results in penalty fees or a forfeiture of a portion of returns, and those penalties can be particularly severe with jumbo CD.

Due to the large principal involved, jumbo CDs tend to be cash instruments for institutional investors such as banks or pension funds, both organizations with significant capital seeking stable investments. A jumbo CD can also be of value to high net worth personalities with large cash holdings looking for a guaranteed return without need to access principal in the short term.

Jumbo CDs may be negotiable or non-negotiable. Negotiable CDs may be traded in the secondary market and are often issued in bearer form, which means that physical possession of the paper document is the sole proof of ownership. The banks that issue bearer CDs keep no records of ownership. Non-negotiable jumbo CDs, like the traditional CDs, remain on deposit in the bank that issue them and are held in the name of the buyer. These jumbo CDs like other bank deposits are FDIC insured, to the tune of $100,000 per depositor in different categories of taxable accounts in each bank and up to $250,000 if they are held in self-directed retirement accounts, such as an individual retirement account (IRA)