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Special Custodial 10-Year CD with a Competitive Rate and Early Withdrawal Penalty


Another CD with a top rate is being offered through the custodial CD program of Jumbo CD Investments, Inc. It's a 10-year CD with a 2.50% interest rate (APR). Minimum deposit is $100,000, and it has a 6-month early withdrawal penalty. It’s nationally available, and compared to other nationally available CDs, it is competitive. As of 6/20/2014, the highest CD rate that doesn’t require an active checking account is 2.60% APY for a 10-year CD at Apple Federal Credit Union. Apple has much larger early withdrawal penalties. There are some 5-year rates with decent penalties that are close to this, but if you are at the FDIC maximum with those already, this could be a good alternative. To see how these CDs compare when you factor in the EWP, refer to our CD Early Withdrawal Penalty calculator.

This isn’t the typical type of CD that you get from your local bank or credit union. You have to go through a custodian bank. However, both the custodian bank and the issuing bank are FDIC members, and the CD will be FDIC-insured by the issuing bank (assuming you keep the amount under the FDIC limit). Unlike the typical brokered CD, you can’t sell this on the secondary market if you need to redeem the CD early. The issuing bank will just charge you a 6-month early withdrawal penalty. The underlying bank does use the common phrase "If we consent..." in their EWP disclosure.

This CD is available for both personal and business accounts. Joint and trust accounts can also be established and used to increase the amount that is FDIC insured.

I’ve always tried to share with you the best CD deals even when they’re not the typical bank CD. That’s the reason I’ve always included credit unions. I’ve also mentioned brokered CDs when they have offered higher rates. In this case, you can get a good rate especially if you are already at the FDIC/NCUA insurance limits on the higher rate institutions.

This CD will be held by an FDIC bank, but it won’t be purchased directly from the bank. You have to go through a custodian bank (which is also a FDIC member). The bank that issues the CDs doesn’t want to deal with retail deposits directly, and that’s the reason for the custodian bank.

This CD offering is available through the CD placement service, Jumbo CD Investments, Inc. Chris Duncan from Jumbo CD Investments reached out to me to promote this deal. Since it's a good deal, I decided to help promote it.

Chris Duncan has worked for Jumbo CD Investments since 1999, and over the years Chris has often shared his CD experiences at and at my Bank Deals blog before DA. You can learn more about Chris and Jumbo CD Investments at their About-Us page.

In the past, Chris has wanted people to send an inquiry through their website before providing the name of the underlying bank. This time he is willing to provide that if someone sends him a PM through DepositAccounts. However, he asks that people not "out" the bank. That would ruin the offer for everyone. If after that has been provided, someone is interested, they do need to submit the request at Jumbo CDI's website.

Chris provided me the steps that you’ll go through if you’re interested in this CD:

  • Review the CD offer at Jumbo CD Investments at this link, and give them a call
  • Jumbo CD Investments will send you a custodial agreement from the bank that will serve as the custodian. Jumbo CD Investments will also provide you information on the bank that will issue the CD. You’ll be able to confirm that both banks are FDIC members. You can also use DA’s Bank Health Ratings page to check on their financial health.
  • Fax the completed custodial agreement to Jumbo CD Investments along with your w-9 and an authorized signer resolution.
  • Place your order with Jumbo CD Investments and wire transfer your funds to the custodian bank to purchase your FDIC-insured CD.
  • Jumbo CD Investments will notify the bank and provide them with all of the setup documents.
  • This completes the CD opening process. You will receive a confirmation from the custodian bank.
  • After the CD is opened, interest can either be paid monthly via check or a direct deposit to another bank account (via ACH) from the custodian bank.
  • The custodian bank will send you monthly statements with no fees.
  • When the CD matures or is closed early, you can choose to have the principal and interest wired back to your own bank without any fee.

It's not common for this type of deal to be made available to retail investors. If this is interesting to you, check out the Jumbo CD Investments’ special page and click on the "Get Started" button. From there you can contact Chris and learn more about the CD details. Also, feel free to ask questions in the comments of this post. Chris will be happy to answer your questions.

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ChrisCD   |     |   Comment #1
Commenting to be Subscribed.  Thank you Ken for allowing us to share these specials. 
cd :O)
Anonymous   |     |   Comment #2
Minimum $100K but "The bank that issues the CDs doesn’t want to deal with retail deposits directly"???
ChrisCD   |     |   Comment #6
Retail deposits require much more information to be gathered, checked, and stored then deposits from Patriot Exempt institutions such as banks like the custodian bank.
Alskar   |     |   Comment #3
I gather that IRA CD's are not available via this program?
ChrisCD   |     |   Comment #7
Correct.  It is not available for IRAs.
Anonymous   |     |   Comment #4
I'm concerned about the "if we consent clause" on the early withdrawal, as well as whether there is any wording in the account agreement that may allow these banks to increase the withdrawal penalty on an existing CD. Ten years is a substantial commitment @ 2.5%. This type of deal seems to have multiple layers of possible loopoles. 
Anonymous   |     |   Comment #5
"If we consent" reflects that there will consent granted, i. e. not always say "no."  Otherwise, they could have a flat out prohibition.  The ultimate question is the criteria for them?  It's like asking an auto insurer, "what the criteria to not renew a policy?"  May want to try to confirm in writing what the bank's criteria is?
ChrisCD   |     |   Comment #8
The majority of banks have such a clause in their disclosures.  When we have asked various banks about the language they have indicated it is to protect them from an unexpected large number of closure requests.

In all of our years we have only had two banks outright refuse a closure request and one of those negotiated for a higher penalty.  
Anonymous   |     |   Comment #9
Your comment "one of those negotiated for a higher penalty" is just another way the banks try to **** the customer with a hidden EWP.  How petty.
ChrisCD   |     |   Comment #10
My point for the comment was I think the risk is low, but we all know of different institutions (including a credit union) that have not honored the original penalty.

I would not put all of my eggs in one basket and wouldn't do a long-term CD like this unless I had my ladder already established.  So I don't think long-term CDs are for everyone.
Anonymous   |     |   Comment #11
$200K invested in 10 year cd earning 3% rate  will earn apx. $8485 more than a 2.5% rate 10 year cd in 10 years.  This is something one should consider before investing in a cd that pays 1/2% less with a 6 month EWP. 
ChrisCD   |     |   Comment #13
My math shows a difference of $10K to $13K depending on compounding.  I have written before that if you don't care about the ability to close it, take the higher rate.  But the penalty provides the option to close and move the funds if rates do rise over the term.

There is a risk the bank wouldn't honor the penalty.  There is a also a risk with any bank, that they are at some point closed down.  At that point, your rate and penalty become moot.  Both risks in my opinion are small, but they are there.
Anonymous   |     |   Comment #14
#11 again. Chris, I rechecked my math.  Sorry about the error.  The higher amount of interest just backs my point of view even more though.  It was surprising to me on how just 1/2% makes that much difference in the amount of interest on $200K.
ChrisCD   |     |   Comment #15
No worries.  I hope people can see I'll provide info even it seems to work against the offer.

Of course, if the CD is held for the full-term, the 3% is considerably better, here is a scenario to consider.

Let's say after 3-years, rates have risen to 4%.  If you close the 2.5% at that point, earnings are about $215,378.23 (assuming annual compounding) and the penalty would be $2,684.85.  That leaves $212,692.37 to re-invest.  Using that for the remaining 7-years would earn you $279,889.83 which is about $11K more (after the penalty) then the 3% that can't be closed.

So it just depends on where you think rates will be. 
Anonymous   |     |   Comment #12
I am still concerned whether the 6 month penalty is protected from modification in the agreement after the CD has been opened.
Anonymous   |     |   Comment #16
The wording is such that there are no firm guarantees. Sad, but true.

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