What is a Jumbo CD?
A jumbo CD is a certificate ofof $100,000, $1 million or more.
How Does a Jumbo CD Work?
Let's say Company XYZ is a retirement fund manager expects interest rates to fall dramatically in the coming year and also does not want to more fund assets in the . Accordingly, he $1 million in a jumbo CD from Bank ABC, which is a rate of 3.25% for two years. By doing this, the fund manager locks in a 3.25% interest rate on the ; he expects interest rates to rebound when the CD matures.
Jumbo CDs are often bought and sold on secondary markets, meaning that if the fund manager realizes his predictions about interest rates are wrong, he can "get out" of the CD by selling it to a third party before the two years are up.
Note that Jumbo CDs often are not insured by the FDIC.
Why Does a Jumbo CD Matter?
A CD with a very large denomination, usually $1 million or more, is typically bought by institutional investors who are interested in low-risk . Jumbo CDs are usually in bearer form, and have secondary markets that are highly liquid. They are also called certificates of .