Investing your money is a balancing act. You need to estimate your need for your money along with the amount of risk that you're willing to take. Certificates of Deposit (CDs) are a safe investment because they are backed by the Federal Deposit Insurance Corporation (FDIC). If you're considering investing in CDs, you want to look for the highest interest rate, which you can usually find in jumbo CDs.
What Are CDs and Jumbo CDs?
When you purchase a CD, you agree to invest your money for a certain period of time, usually anywhere from a few months to one, two or five years. In return for your investment, you get a certain interest rate. You can get your principal and the interest back after the loan reaches the maturity date. Standard CDs come in a variety of denominations and can be bought for as little as $100. To purchase a jumbo CD, however, you must usually be willing to invest $100,000, though you may find some that start at $50,000.
Advantages of a Jumbo CD
For those who can afford the investment, jumbo CDs offer higher interest rates, which means that you can grow your money faster. It's a safe place to invest your money with guaranteed returns.
When You Should Use Regular CDs
Regular CDs are more appropriate for young investors. They are safe, but they don't offer the high returns that you would typically see after investing in the stock market long-term. The lower purchase price makes them more accessible to everyone. It also doesn't tie up too much of your money -- if you were to purchase a jumbo CD, that large investment would be held for a year or more.
Whether you purchase standard or jumbo CDs, laddering them can be a smart investment technique. In this process, you start by purchasing several CDs that mature at different intervals -- one at one year, one at two years, one at three years, and so on. When you do this, you will have one CD that matures as each year passes. Generally speaking, the longer the term of the CD, the higher the interest rate on it.
Maggie McCormick is a freelance writer. She lived in Japan for three years teaching preschool to young children and currently lives in Honolulu with her family. She received a B.A. in women's studies from Wellesley College.