A Negotiable Certificate of Deposit, or NCD, functions much like a regular CD, but requires a much higher minimum investment of $100,000. This product is relatively low risk, but cannot be cashed in before maturity.

Negotiable Certificates of Deposit: Is Bigger Better?

A Negotiable Certificate of Deposit is, at its heart, an investment vehicle that aims to minimize risk. The idea is to not lose any money, and make some while you're at it. Often employed by institutional investors as a counterweight to riskier investments in the stock market, NCDs can serve the same purpose for individual investors. However, a few major considerations must be taken into account.

A Lot Like a Regular CD, but a Lot Bigger
Sometimes called a Jumbo CD, a Negotiable Certificate of Deposit shares certain characteristics with its smaller cousin. You deposit an amount of money with a bank, and the bank pays you a set interest rate per year, and you can't just take out the money whenever you want.

The main difference between a regular CD and an NCD is size. To even buy a Negotiable Certificate of Deposit, you have to pony up $100,000. Some cost up to $1,000,000. The interest rates on NCDs are usually comparable to the highest CD rates.

You Can Trade Them, But You Can't Cash Them In
This is where things get interesting. First, because there is a thriving secondary market for Negotiable Certificates of Deposit--meaning that investors can quite readily sell these products amongst themselves.

Although you have to sell at a discount to face value, the secondary market offers important liquidity for people who suddenly need that money.

Second, unlike a regular CD, you cannot cash in a Jumbo CD before maturity. Your only option for cashing out is to sell to someone else.

Low Risk, but Not No Risk
NCDs exist because they're relatively low risk. Banks take special pains to guarantee this product. Meanwhile, institutional investors such as mutual fund managers are constantly in need of low risk, large-bore investments to balance out their riskier bets on stocks. So if you really need to sell an NCD, you probably can at a decent price.

No investment is without risk. For example, once you exceed the $250,000 limit, you are no longer covered by FDIC insurance. However, some issuers offer a service called CDARS which allows you to insure CDs up to $50 million. And of course it's a great idea, when investing such a large sum of money, to buy Negotiable Certificates of Deposit only from reliable and trustworthy banks.

A Good Fit for Retirement Saving?
Individual investors considering using NCDs to save for retirement must ask themselves two key questions:

1. Do I have enough money to need such a large investment?

2. Am I really sure that I will not need this money sooner than I think I will?

If you can honestly answer both those questions in the affirmative, then a Jumbo CD or two may be a worthwhile part of your overall retirement savings plan.