Are you looking to invest at least six figures in a certificate of deposit (CD)? Your search for the right CD might lead you to consider jumbo CDs or a similar — but less common — product called negotiable CDs (NCDs).
While a negotiable CD can look like an attractive option for large deposits, it’s not likely to be your best choice. Why? First, you’ll be hard-pressed to find a bank that still offers NCDs to individuals. Second, these CDs are often sold in denominations of $1 million, so they’re mainly for institutions.
If you have the money to invest in an NCD, you might appreciate two features: You can sell these CDs before they mature and potentially negotiate your rate and other terms.
How do negotiable CDs work?
Negotiable CDs have a few characteristics in common with traditional, nonnegotiable CDs, but they’re also distinct. With both types of CDs, you agree to deposit a set amount of money in return for guaranteed interest. Both are also low risk and come with FDIC insurance up to $250,000.
But when you look beyond the basics, NCDs have quite a few of their own unique features.
Where can you find a negotiable CD?
Very few retail banks offer negotiable CDs to individual investors, but you may be able to find an NCD at a national or state-chartered bank, a savings association, or a state or federal credit union.
For example, the only negotiable CD we could find was from Ascend Federal Credit Union, which offers negotiable rates on six- to 24-month CDs when you deposit a minimum of $500,000.
Are negotiable CDs worth it?
Even if you can find an NCD to invest in, it’s not likely to be your best choice.
Unlike traditional CDs, the rates on NCDs can be variable, meaning they fluctuate with the market. If your rate increases, the issuer may be able to “call” the CD, meaning they can terminate the account early. If rates decrease, you might be tempted to sell on the secondary market, but you’ll have to list the CD at a discount and take a loss.
On top of that, FDIC insurance is limited to $250,000, so it’s risky to invest more than that dollar amount into an NCD.
Is a negotiable CD the same thing as a jumbo CD?
Not all jumbo CDs are negotiable, but most of them are.
Where can I find a negotiable CD?
There aren’t many banks that offer negotiable CDs for individual investors. You may be able to find one at a national or state-chartered bank or at a state or federal credit union.
How can I negotiate a higher rate on my CD?
You might be able to negotiate a higher interest rate on a negotiable CD by showing the issuer that their competitor offers higher rates.
