Jumbo CDs May Provide Buffer for Some
Account holders with time and money on their side may be turning to certificates of deposit in the $100,000 and above range with terms longer than one year.
That's according to data from research firm Market Rates Insights. Despite an overall decrease of $200 billion in CD balances at banks in the first half of this year, jumbo ($100,000 and over) CDs of one year and over are growing. From January to August, jumbo CDs of one year and over grew from $183 billion to $214 billion.
By comparison, jumbo CDs under one year decreased by $91 billion from $739 billion in January to $648 billion in August. Similarly, regular CDs of one year and over were nearly flat, and regular CDs under one year decreased from $502 billion to $443 billion.
"People with time and money are hedging against further decline in long-term CD rates" said Dan Geller, executive vice president at MRI. "Rates of long-term CDs declined twice as much as short-term CDs since the beginning of this year."
Geller said the average decline in short-term CDs was 0.16% versus 0.31% for long-term CDs. Further decline in long-term CDs is very likely next year barring any occurrence of hyper inflation, he added.
The increase in long-term jumbo CDs does not appear to be the result of interest rate differentiation between regular and jumbo CDs because the rate variance is minimal, Geller noted. For example, the average interest rate for a long-term regular CD is currently 1.26%, and long-term jumbo CD 1.35%. The average interest rate for a short-term regular CD is currently 0.37%, and a short-term jumbo CD is 0.44%.
"Therefore, it appears that the increase in balances of long-term jumbo CDs has less to do with current rates, but rather with the anticipation of future decline in long-term CD rates," Geller said.