Q: I'm looking for the best interest rate for a deposit of $1 million.
A: A deposit of that size gives you a number of options, but it also creates some practical considerations to be looked after. Here are some factors that should help guide you to the right decision:
- FDIC insurance. If you want absolute security for your money, you should look at savings accounts, money market accounts and CDs that are covered by FDIC insurance. The only catch is that your deposit exceeds the $250,000 maximum on such insurance. If the money is held jointly by you and your spouse, that amount doubles, and if the money is split between taxable and IRA money, each is entitled to $250,000 in interest. Even so, it is likely that you will have to split your deposits among multiple banks to keep them fully insured (simply splitting into multiple accounts at the same bank does not increase your coverage).
- Time horizon. Before you start comparing interest rates, you need to figure out when you will need to access the money. This will determine whether you should keep some or all of it in savings or money market accounts, which allow immediate access, or whether you can put the money into longer-term CDs, which commit your deposit for a specified term but in return offer higher interest rates.
- Investment goals and risk tolerance. You may want to consider whether deposit accounts are appropriate for the entire investment, or if you can afford to take some risk with some of it in order to meet other investment goals, such as pursuing growth through equities or higher yields through bonds.
- Comparison shopping. Once you have narrowed down what type of deposit products you are looking for, you can compare rates on those products. MoneyRates.com keeps up-to-date lists of rates for a variety of products. This comparison shopping is vital, because rates vary greatly. For example, the latest MoneyRates.com America's Best Rates survey found that the national average rate for savings accounts was about 0.18 percent. The highest rates, on the other hand, were up around 0.90 percent, or about five times the national average.
- Jumbo deposit rates. For deposits of the size you are likely to be making, be sure to inquire about jumbo deposit rates. These are special rates offered on larger deposits, typically $100,000 and up, though not all products offer a premium for large deposits. According to recent FDIC figures, the highest rate premiums for large deposits are typically found on jumbo money market accounts, with rates on those deposits an average of 5 basis points higher than on ordinary deposits.
Keep in mind when you are comparing interest rates on different types of products, you also have to compare risk levels. FDIC-insured deposits give you an absolute degree of certainty. Other types of investments may well offer higher interest rates, but you have to balance that against the potential drawbacks of accepting a higher level of risk.
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