CD rate comparisons
Ask Dr. Don by Don Taylor, Ph.D., CFA • Bankrate.com

Dear Dr. Don,
What accounts for the notable difference between rates on jumbo CDs and rates on jumbo IRA CDs? (For example: When looking at the historical CD graphs provided by this Web site, one-year jumbo IRA CDs seem to run roughly 10 basis points or so higher than a regular one-year jumbo CD.) The same goes for other CD terms as well -- three-year, five-year, etc. Any feedback would be greatly appreciated.

Dear Brian,
I'm not seeing what you're seeing in the difference in yields between certificate of deposit products. There are no hard-and-fast rules concerning the yield spreads between regular CDs and jumbo CDs and regular CDs and IRA CDs. The difference in yields, expressed in basis points (where one basis point is one-hundredth of 1 percentage point), just isn't consistent across products or among financial institutions.

Jumbo CDs carry more risk for the depositor because a jumbo CD typically has a minimum deposit of $100,000. At a minimum, the depositor is bumping up against FDIC-insurance limits, except in retirement accounts which are insured up to $250,000. So the deposit is riskier than an insured deposit and investors expect higher yields as compensation for that risk.

IRA accounts have higher administration expenses, so you'd expect the yield on these accounts to be somewhat lower to compensate the financial institution for those increased costs. Annual account fees can compensate the financial institution for the increased administration expense so the yields don't have to be lower.

The following table uses recent postings on Bankrate's High Yield CD and High Yield IRA CD rate-search pages. While the highest yield products may not accurately reflect the spread relationship between products in your local market, it does disabuse the notion that the interest rates between these products must differ. Countrywide Bank pays an extra 5 basis points for jumbo CDs, but other than that the rates are the same across products at these four financial institutions.

Annual percentage yields of various CD products
	5-year CD	5-year jumbo CD	5-year IRA CD	5-year jumbo IRA CD
BankDirect	4.50%	4.50%	4.50%	4.50%
Countrywide Bank	4.41%	4.46%	4.41%	4.46%
First Internet Bank of Indiana	4.54%	4.54%	4.54%	4.54%
Intervest National Bank	4.55%	4.55%	4.55%	4.55%

Are 5 basis points enough to get you to invest in a jumbo CD? There's no real need to decide since you can invest at a higher rate in an insured CD with a different financial institution.

Looking at the historical graphs on Bankrate, I can see what you're saying about the variability between types of CDs having the same term, but when looking at the rate offerings at specific institutions, those differentials aren't evident. In the end you're investing with a bank, not a group of banks, so what's most important is the yield you can achieve with the CD term and product attributes that you choose.