Mary has $100,000 that she would like to invest in jumbo certificates of deposit (CD). She doesn’t want her money tied-up to long, but she doesn’t want to pay any penalties. How long must she wait for the CD to mature and to withdrawal without penalty?
Explanation
Answer: A - For Mary to avoid withdrawal penalties on her jumbo CD, she must wait one year for maturity. Depository institutions can sell negotiable CDs or jumbo CDs if an investor has $100,000 or more to invest. Maturities tend to be up to one year. CDs of less than $100,000 are generally nonnegotiable. A nonnegotiable CD is one in which the initial depositor must wait until maturity to receive the funds. If funds are withdrawn prior to the maturity date, there is an early withdrawal penalty. A negotiable CD allows the depositor to sell the CD in the open market any time before maturity. Once issued, a CD becomes negotiable, meaning they can be bought and sold in the secondary markets. Yields on CDs generally are above the rates on federal agency issues having similar maturities.
