How an Add-On Certificate of Deposit Works

Unlike the traditional certificate of deposit, an add-on certificate of deposit allows you to make multiple deposits during the certificate's term. An add-on certificate of deposit or an add-on CD allows additional deposits at various periods in time before its maturity. It is in contrast to a regular certificate of deposit, where after you make an initial deposit, you cannot make changes during the certificate's term until it matures. Then after the term, the initial deposit plus any interest accumulated will be received by the individual.

However, similar to a traditional certificate of deposit, you lock in the interest rate on an add-on CD for the duration of the certificate of deposit. The banking institution will keep the same interest rate as when you opened the certificate of deposit regardless of the additional deposits made. The initial process of opening an add-on CD is very similar to opening a traditional certificate of deposit. When you deposit a sum of money into the certificate of deposit, they fix an interest rate for a set period.

Nevertheless, the banking institution offers more options after making an initial deposit into an add-on CD than a traditional certificate of deposit. Add-on maturities range from six months up to five years. While a minimum opening deposit needed for an account goes from $5 to $500. However, it is fundamental to note that there may be restrictions governing how you can add additional funds to an add-on CD.

Example of an Add-On Certificate of Deposit

An add-on CD offers more flexibility compared to a traditional CD. This option might please individuals who want to add money to their certificate of deposit after they first open it. An add-on CD improves your savings without taking risks. Assuming an individual is interested in saving to make a down payment for a home, pay tuition for education, or save for their family to take a trip abroad.

The best option for this individual is to include an add-on CD to their savings plan. The individual might consider various add-on CDs meeting their requirements. Examples of add-on CDs are:

  • Vibrant Credit Union offers a 5-year certificate of deposit with unlimited deposits of $5 or more. It is a long-term add-on CD.
  • The individual can open an add-on CD account at Associated Bank for only $100. However, it is a short-term add-on CD and only runs for one year.
  • A 24-month add-on CD is offered by Bank5Connect with a minimum of $500 to open. You can make additional deposits at any period in time.
  • The individual can also open an add-on CD with Bank of the West. However, the add-on CD is limited to IRA accounts. The individual needs $100 to open the account, and they will have to pay an annual fee of $12. Their add-on CDs run for just 12 months, and you can make additional deposits of $100 or more; however, it is subject to annual limitations of contributions to an IRA.

From these examples listed above, you can see those add-on CDs come with a vast range of choices, dependent on your particular cash flow, desired rate of savings accumulation, available cash flow for savings, and your ultimate money goal.

Significance of an Add-On Certificate of Deposit

Add-on CDs have various advantages to an investor. You can make deposits to the account at any period. Very advantageous when interest rates are flat or declining. Higher rates are paid compared to savings or money market accounts. You can conveniently set up a monthly savings plan with regular contributions to the add-on CD.

Additionally, maintenance fees are not paid (except for IRA accounts). Insured by the FDIC for banks or insured by the National Credit Union Insurance Fund for a federal credit union.