What Is an Add-on CD?

Quick Answer

Unlike a traditional CD, an add-on CD lets you make deposits after you open the account.

happy woman at modern home in sunny day researching add on CDs.

As you explore investment options, you might look into certificates of deposit (CDs). When you open a CD, you agree to deposit money in the account and keep it there for a certain period of time. In return, you earn a fixed rate of interest.

CDs come in several forms, including the add-on CD. An add-on CD lets you add money to your account during the maturity period, such as 12 months or three years. That's in contrast to traditional CDs, which typically prohibit you from adding money during the maturity period.

What's an Add-on CD?

An add-on CD is a type of CD that lets you add money to your account before the maturity period ends. In that way, it's similar to a savings account. Some banks and credit unions offer add-on CDs.

So, let's say you open a 12-month add-on CD. Aside from the initial deposit of $500, you're allowed to stash more money in the account during the 12-month maturity period. Depending on the institution's policies, you may be able to add money at any point during the CD's maturity period—and you'll earn interest on the additional deposits.

A traditional CD, on the other hand, allows only an initial deposit; follow-up deposits aren't permitted. So, with a 12-month traditional CD, you'd start with a $500 deposit, but you wouldn't be able to add more cash during the 12-month maturity period. This means you'd earn interest only on the $500 deposit.

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Where Can You Get an Add-on CD?

Add-on CDs aren't as widely available as traditional CDs. Among the financial institutions that promote the availability of add-on CDs on their websites are:

  • Associated Bank
  • Bankers Trust
  • Bank5 Connect
  • BECU (formerly Boeing Employees' Credit Union)
  • BMO Harris Bank
  • Credit Union of Colorado
  • East Idaho Credit Union
  • FAIRWINDS Credit Union
  • First Horizon Bank
  • FNCB Bank
  • MSU (Michigan State University) Credit Union
  • Provident Credit Union
  • SAFE Credit Union (formerly Sacramento Air Force Employees Federal Credit Union)
  • SECU (State Employees Credit Union of Maryland)
  • Towne Bank
  • Veridian Credit Union

How Are Add-on CDs Different From Traditional CDs?

Add-on CDs and traditional CDs have similarities and differences.

Among the similarities, both add-on CDs and traditional CDs generally:

  • Offer a fixed interest rate during the maturity period
  • Come with interest rates that are higher than those for standard savings accounts
  • Provide various terms (or maturity periods), such as six months, 12 months or five years
  • Supply federal insurance up to a certain dollar amount at financial institutions that are members of the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA)
  • Impose a penalty for withdrawing your money before the maturity period ends
  • Require you to pay taxes on the interest you earn

Add-on CDs differ from traditional CDs in a variety of ways, including:

  • They let you add money during the maturity period
  • Add-on CDs may offer lower interest rates

Pros and Cons of Add-on CDs

As with other types of CDs, add-on CDs have pros and cons.

Pros of Add-on CDs

  • Fixed interest rate
  • Compound interest, meaning you earn interest on accumulated interest
  • Ability to add money during maturity period
  • Potentially low minimum initial deposit, such as $100
  • Usually insured by FDIC or NCUA

Cons of Add-on CDs

  • Limited availability
  • Potential requirement for minimum initial deposit, such as $500
  • Possible penalty for early withdrawal of money
  • Potential restrictions on deposits, such as those by cash or check
  • Possible cap on account balance

Alternatives to Add-on CDs

Alternatives to add-on CDs include:

  • High-yield savings account: A high-yield savings account generally offers a higher-than-average interest rate than other savings accounts do.
  • CD ladder: Creating a CD ladder involves mixing several shorter-term and longer-term CDs, enabling you to gain staggered access to cash from shorter-term CDs and still earn higher interest on longer-term CDs.
  • CD barbell: With a CD barbell, you split a pool of money into one short-term and one-long term CD. This strategy lets you tap into cash for short-term needs while taking advantage of a high long-term interest rate.
  • Dividend-paying stocks: Companies use dividends as a way to share profits with stockholders. Dividend stocks can be a source of short-term cash and can help cushion the impact of market volatility.

The Bottom Line

An add-on CD can be an appealing option for investing. Its primary benefit: You can deposit money throughout the CD's term, unlike a traditional CD. However, add-on CDs aren't widely available, and they may come with a lower interest rate than traditional CDs do.