What Is an Add-on CD?

Can You Add Money to a CD?

A CD is a type of savings account that has a set term and pays a higher interest rate than traditional savings accounts. In most cases, you can't add money after making the initial deposit. Once the CD reaches maturity, you can withdraw your deposit plus interest or lock in your CD for another term—adding more funds if you choose at that time.

If you like the higher interest a CD earns but want the ability to add more funds during the CD's term, you have one option: an add-on CD. This type of CD offers the flexibility to make additional deposits throughout the CD term.

Learn more: What to Do When Your CD Matures

What's an Add-On CD?

An add-on CD works like a traditional CD. You deposit a lump sum upfront, then earn a fixed interest rate over a set term. Unlike most CDs, add-on CDs allow you to make additional contributions after the account is opened, giving you the opportunity to grow your balance and interest earnings over time.

Add-on CDs still require you to keep your money deposited until maturity. Withdrawing funds before the term ends may trigger a penalty, just like with traditional CDs.

Additional deposits to an add-on CD typically earn the same annual percentage yield (APY) as your original deposit, and interest continues to compound periodically, depending on the bank's terms. However, each financial institution has its own rules around add-on contributions, including limits on the amount and frequency of deposits.

Learn more: How Much Should I Put in a CD?

Pros and Cons of Add-On CDs

Add-on CDs are flexible and predictable, but they're not ideal for every saver. Understanding the pros and cons can help you decide whether this type of account aligns with your goals.

Should I Get an Add-On CD?

An add-on CD might be a good fit if you:

• Want to lock in a rate before interest rates fall: If rates are expected to drop, an add-on CD allows you to lock in a fixed APY and continue earning it on future deposits.
• Want to take advantage of a promotional offer: Banks and credit unions sometimes offer short-term add-on CDs with attractive rates. (The credit union version of a CD is called a share certificate, but terms are essentially the same.)
• Have limited funds to start saving: With lower minimum deposit requirements, add-on CDs are ideal for starting small and growing your balance gradually over time.
• Are saving for a short-term goal: Add-on CDs work well for goals like saving for a down payment on a car or home, provided you don't need immediate access to your money.

However, you may want to explore alternatives if you:

• Prefer to bank with a large institution: Most national banks don't offer add-on CDs, so availability can be an obstacle.
• Are building an emergency fund: CDs aren't the best place to keep your emergency savings since you'll face penalties if you need to withdraw the money before maturity.
• Plan to contribute frequently or in large amounts: Contribution caps may limit your interest-earning potential.
• Expect interest rates to increase: Because the APY is fixed, additional deposits won't benefit from future rate increases.
• Want more liquidity and flexibility: A high-yield savings account or money market account may be a better option if you expect to make withdrawals or need easier access.

How to Get an Add-On CD

Opening an add-on CD is a relatively easy process, similar to opening a traditional CD:

1. Compare offers. Look at interest rates, minimum deposit requirements and contribution limits from various financial institutions. Some that offer add-on CDs include BECU, East West Bank, Navy Federal Credit Union and Credit Union of America.
2. Open the account. You can typically open a CD in person, over the phone, online or through the bank's mobile app. If you're opening one at a new credit union, check the membership eligibility requirements to make sure you qualify.
3. Make your initial deposit. Depending on the bank options, you can transfer from an existing account, either within the same bank or from another institution, or make your deposit via wire transfer or ACH.
4. Set up recurring deposits. If allowed, you can automate deposits to maximize your balance over time. Just be sure your contributions stay within the bank's limits.

Tip: Even if a CD isn't labeled an add-on CD, read the terms. Some CDs still allow additional deposits during the term.

Alternatives to Add-On CDs

If an add-on CD doesn't fit your needs, consider other low-risk options that offer competitive yields and more flexibility.

• Bump-up CD: These allow you to request a one-time interest rate increase during your CD term if the rate for that product goes up. Some banks allow you to make an additional deposit to a bump-up CD within 10 days of requesting the rate increase.
• CD ladder: Spread your investment across multiple CDs with staggered maturity dates rather than purchasing a single CD with a lump sum of money. A CD ladder allows you to take advantage of different interest rates as the market changes. As each CD matures, you can reinvest or access the funds without penalties.
• High-yield savings account: Earn interest while maintaining easy access to your funds with competitive high-yield savings accounts. If there's an urgent spending need, you can withdraw money from your account without facing a penalty for an early withdrawal.
• Money market account: These offer higher interest rates than a regular savings account with limited check-writing or debit card access. Interest rates generally aren't as competitive as CDs or HYSAs, but if you need flexible, occasional access to your funds, a money market account could be a decent alternative to a traditional checking or savings account.
• Dividend stocks: While riskier than CDs, dividend-paying stocks can provide regular income. Dividends are usually paid quarterly and can be reinvested for compound growth, but stock prices and dividend payouts can fluctuate.
• Series I savings bond: Issued by the U.S. Treasury, Series I bonds offer returns based on inflation. Interest accrues for 30 years, but you're able to cash in bonds after 12 months. However, if you cash in your bonds before five years, you'll lose the last three months of interest.

Learn more: Best Low-Risk Investments

The Bottom Line

Add-on CDs can be a smart way to steadily build your savings at a locked-in rate. While they aren't widely available and may come with deposit limits, they can be a great fit if you want predictable returns. Be sure to compare alternatives and consider whether a more flexible savings option might be a better fit for your financial goals.