Q: Where could I find the highest interest rate on a jumbo account?
A: In today's low-rate world, banks are less hungry for deposits and thus jumbo accounts are more scarce and less rewarding than they once were. In fact, according to the latest FDIC figures, there is no difference between the average rate for a jumbo savings account and the average for a regular savings account.
Tips to maximize interest rates on jumbo accounts
Even so, there are some things you can do to maximize the interest on your account, and given the size of jumbo accounts - $100,000 or greater - even small rate differentials can add up to meaningful dollars.
Here are four tips:
1. Determine the time frame for needing the money
Jumbo account or no jumbo account, the amount of interest you earn can be affected by how long you are willing to lock up your money. Making a longer commitment can have a much greater positive impact on your interest rate than having a jumbo account. So, unless you need immediate liquidity, consider stretching out into a multi-month or even multi-year certificate of deposit (CD).
2. Consider splitting money into multiple accounts
The issue of time frame is not an all-or-nothing proposition. You may need only some of your money to be immediately on hand, while the remainder of it can be invested for the long-term. In that case, consider splitting your money between a short term account for immediate liquidity, and long term CDs that can earn a higher interest rate. You can even split your money into a series of CDs with different maturity dates - a technique known as laddering - to make money available for a corresponding series of future needs.
3. Distinguish between money market and savings accounts
To the extent you need immediate liquidity, money market accounts and savings accounts are the choices that allow for this. They are largely similar, but according to the latest FDIC data, money market accounts are paying a slightly higher interest rate on average. They also tend to pay a premium for jumbo accounts, which savings accounts are not typically doing at the moment.
4. Shop around for the best bank rates before you commit
Once you've figured out what type of account what you need, shop around. The difference in rates between banks is much greater than the difference between jumbo and ordinary rates is likely to be.
FDIC insurance coverage and limits for jumbo accounts
Due to the financial crisis, the FDIC insurance coverage limit was raised from $100,000 to $250,000, while the determination of a jumbo account still generally remains at $100,000. With the FDIC insurance limit now well above the jumbo account definition, depositors have a great opportunity to reap any benefits associated with a jumbo account without leaving any of their assets uncovered.
However, if your account is in excess of $250,000, you may want to consider splitting it among multiple banks. The resulting accounts should still be able to reap the benefits of jumbo accounts at two or more banks, but you would be avoiding the risk of having some of your deposits left uninsured.
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