There are valid reasons for opening multiple CDs and jumbo accounts in today's economy.
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In the current environment, certificates of deposit (CDs) continue to offer competitive interest rates. Some traditional CD accounts and jumbo CD accounts offer an attractive annual percentage yield (APY) of around 4.50% or higher. While you can maximize your returns with these higher yields now, change is likely on the horizon.
After lower jobs report, there's a high likelihood of a rate cut from the Federal Reserve later this month. Projections from the CME Group's FedWatch tool show that a rate cut is all but certain in September. For savers with significant cash reserves, then, opening a CD account now while you can still lock in a high rate makes sense. But should you open a single jumbo CD account or open multiple CD accounts, allowing you to spread out your funds across different CD terms? We spoke to banking and savings experts to help weigh in on what you should consider when comparing both options right now.
Start by seeing how much more money you could be earning with a high rate CD account here.
Should you open multiple CDs or a jumbo CD account?
If you have six figures of cash you want to protect and earn a steady return on, CDs can deliver. You are typically eligible for a jumbo CD if you have at least $100,000 to deposit. You also have the option to spread out your deposits across various CD accounts and terms, often referred to as a CD ladder. To help you decide now, consider the following factors:
Minimum deposit requirements
The major difference between a jumbo CD and a traditional CD is the minimum deposit requirement. Though it varies by institution, typically you'll need a minimum deposit of $100,000 to open a jumbo CD. Some jumbo CDs may have lower or higher requirements. Traditional CDs, on the other hand, may have no minimum deposit requirements or a much lower one of $1,000.
If you're just shy of the six-figure mark, you may not qualify for a jumbo CD. So, when considering a jumbo CD versus a traditional CD, review your eligibility based on the minimum deposit requirements.
CD interest rates
When comparing multiple CDs and a single jumbo CD account, reviewing the CD account rates is essential. In a normal environment, jumbo CD interest rates would be higher than traditional CD accounts. But we're in an atypical rate environment right now.
"Typically, jumbo CDs do offer a higher rate. But at this time, we are just seeing the term being the key indicator of a rate…right now, we are seeing the shorter terms offer that higher interest rate," says Leah Evans, director of product management at Georgia's Own Credit Union.
Because of expected rate cuts, CD terms of several months to a year are generally providing savers with the most competitive yields. Whether you can get better CD account interest rates with multiple CDs or a jumbo CD depends on the institution and isn't as clear-cut as it might have been before.
"Jumbo CDs generally offer slightly higher yields, but many conventional CDs can match or even beat jumbo yields for shorter terms," says Shana Hennigan, chief business officer at Raisin, a savings marketplace. "And while jumbo CDs usually offer a rate premium, savvy CD shoppers can often find equal or better rates without needing to carry six figure balances."
Compare current CD rates and offers here to learn more about your options.
Flexibility vs. simplicity
When comparing multiple CDs using a CD ladder strategy and a single jumbo CD, it comes down to flexibility versus simplicity.
"A ladder gives you the option to reinvest at higher yields or pivot to something else if your goals change…One jumbo CD might be simpler, but it ties your hands. Especially with a Fed meeting around the corner, having staggered maturities gives you the ability to adapt," says Emilio Cabuto, certified financial planner at Verus Capital Partners.
If you choose to open multiple CDs with short and long CD terms, you'll need to have a strategy. Understand your goals and stay on top of when your CDs mature, so you can plan for what's next. A jumbo CD may require less work, but it locks up more of your money and limits your flexibility. In both cases, it's key to review the early withdrawal penalties and to have liquid savings accessible.
FDIC insurance limits
The good news is that the Federal Deposit Insurance Corporation (FDIC) provides some protection for CDs. The National Credit Union Administration (NCUA) offers similar coverage at credit unions. So in the event of a bank failure, you have some safeguards in place. However, the insurance coverage protects you up to a certain limit, which is something to be aware of, especially with a jumbo CD.
"FDIC and NCUA only cover up to $250,000 per depositor, per institution. Concentrating six figures in one bank may push you closer to that cap," says Hennigan.
Cabuto notes that jumbo CDs can make a lot of sense for couples with joint accounts. In this case, the FDIC coverage applies to each co-owner of the account, essentially boosting your level of protection up to $500,000.
The bottom line
If you have a large sum of cash you want to park somewhere, multiple CDs or a jumbo CD can be worthwhile options. Evans suggests that consumers consider what they want to accomplish with a CD account, which can help them make a decision.
While looking at CD rates is an important element, review the CD maturity date and early withdrawal penalties. Evaluate your financial goals in tandem with your liquidity needs.
If you open multiple CDs, be aware of the CD term maturity date on each account, which is when your CD term ends. If you don't take action, your CD may automatically renew. If you choose to go with a jumbo CD, make sure you have sufficient funds to tap in case of emergency, since you're locking up such a large amount. In either case, you can benefit from CD rates at their current levels before they are likely to drop soon.
