If I had $100,000 in short-term savings, a jumbo CD is not necessarily where I would put it. These days, savers with jumbo savings are not being compensated for large deposits in CDs.
Typically financial institutions require about $100,000 to buy a jumbo CD and they offer slightly higher rates for the larger deposit.
As rates fell over the past couple of years, the spread between jumbos and regular CDs has narrowed. In this week's survey for the Interest Rate Roundup, the difference in yield between a one-year CD and a one-year jumbo CD was just 5 basis points. For a five-year CD, the difference between jumbo and regular was just 2 basis points.
In May 2007 the average one-year CD yield was 3.77 percent, according to Bankrate records. A one-year jumbo CD yielded 4.21 percent -- a much better incentive to stroll into your local bank with bankroll earmarked for CDs.
Though there are several factors at play when it comes to setting CD rates, the amount of money the bank is lending out is a major one.
"When their loan demand is down, their deposit rates should reflect less appetite for money. When loan demand is high, hopefully they will raise deposit rates to bring in some extra cash," says Donald Cummings, managing partner at Blue Haven Capital in Geneva, Ill.
"By offering a bit extra on a jumbo, it reflects the bank's desire for a single transaction rather than multiple, it reflects the bank's desire to engage that customer versus a customer with only a little money, and it rewards the customer who has more money with a bit of extra yield," he says.
Right now, it appears many banks aren't that eager to engage with CD buyers at all. But that's not the case everywhere. Banks that are looking to attract deposits will use CD rates to lure in customers.
Shopping around will turn up institutions that are offering higher-than-average CD rates. Use Bankrate's CD rate tables to find high-yield CDs locally or nationally.