What is an add-on CD?

Add-on certificates of deposit, or CDs, are a specialized type of CD that allows you to make additional deposits after the account is opened, further growing your balance and interest earnings over time. Like traditional CDs, add-on CDs still require you to keep your money locked up for a set period of time, and withdrawing funds before it reaches maturity can still result in penalties. 

Additional contributions will earn the same annual percentage yield, or APY, as your initial deposit, but interest rates may be lower than fixed-term CDs. You might want to compare different rates before choosing one account.

Most traditional CD options do not let you add additional funds to your account before your CD reaches maturity, but add-on CDs are a unique exception. While add-on CDs essentially work the same way as any other CD, the key difference is that they allow you to make contributions to your account after your initial deposit and before your CD matures. 

This can be ideal for savers who are only able to put away a small sum of money at a time, as it allows them to make deposits when they have more money available. However, it is important to check restrictions, since some financial institutions may limit the total amount that can be deposited or the deposit frequency.

You may want to compare term length and interest rates when choosing your CD, as this will determine how much your earned interest will be. When choosing longer terms, banks and credit unions tend to reward you with a higher interest rate and APY, which can allow more compound interest to accrue and further grow your savings.

It is also important to note that additional contributions will grow at the same fixed interest rate as the initial CD deposit. This can be an advantage if you locked in your initial deposit at a high interest rate.

Add-on CDs provide more flexibility than traditional CDs, but they may not be the right choice for every saver. Understanding the advantages and potential disadvantages of an add-on CD can help you decide if this option aligns with your financial goals.

Let’s consider some pros and cons of add-on CDs: 

Pros 

• Flexible deposits: Additional deposits can help increase your earned interest potential.

• Fixed interest rates: You’re guaranteed a fixed interest rate for the duration of your CD term; this typically applies to all additional deposits as well.

• Lower initial deposit requirements: Traditional CDs sometimes require a specified initial deposit, for example from $500 to over $25,000, making them less accessible for all savers. Add-on CDs tend to have lower initial deposit requirements. 

Cons

• Early withdrawal penalties: While additional deposits are allowed, making withdrawals before your CD matures will result in a penalty fee.

• Not widely available: Traditional CDs are widely offered through many banks and credit unions, but add-on CDs are more limited. They are usually offered at a specific selection of banks, credit unions, online financial institutions, and even brokerage firms. You might need to do some additional research to ensure they are available at the institution of your choice, or consider an alternative CD option.

• Interest rates can be lower than traditional CDs: Opting for an add-on CD may mean choosing an option with a lower interest rate.

• No rate increases: While this can benefit you when interest rates drop, you may also miss out on earning opportunities in the event that interest rates rise.

If you’re still undecided if an add-on CD is right for you, consider these CDs and other high-yield savings alternatives:

• No-penalty CD: No-penalty CDs are a great option for those who want the benefits of a CD but may need access to their funds before maturity. As the name suggests, no-penalty CDs allow you to make withdrawals before your CD reaches maturity without having to pay a fee. Restrictions may apply.

• CD ladder: A CD ladder allows you to take advantage of fluctuating interest rates as the market changes. You essentially spread your funds across an array of CDs with staggered maturity dates instead of depositing that lump sum of money into one account.

• Bump-up CD: Bump-up CDs are also similar to traditional CDs, but they allow you to make a one-time request to increase your interest rate if rates rise during your term. This can help you take advantage of changing interest rates.

• Callable CD: Callable CDs are a type of CD that allows the issuing bank or financial institution to “call back,” or redeem, the CD before it matures. Essentially, you may get your principal and accrued interest before your maturity date. These types of CDs may offer higher interest rates to compensate for the risk of potentially maturing early.

• High-yield savings accounts: High-yield savings accounts are a great option to help grow your savings faster. They offer higher interest rates than traditional savings accounts and provide flexible access to your money, which can be ideal for those looking for more liquidity while saving. Raisin also gives you access to high-yield savings accounts, giving you more savings options.

• Money market accounts: Money market accounts also offer higher interest rates than traditional savings accounts. This is another flexible savings option for those who want to boost their earnings but still want access to their funds. Some money market accounts require high initial deposits, but Raisin only requires a $1 minimum, allowing you to get started easily.

The best savings option for you will depend on your unique situation and financial goals. Comparing different options can help you better decide what product is right for you.

There are many types of CDs with different terms, features, and interest rates that can help you meet your savings goals. The best CD for you would be the option that most closely aligns with your financial goals and needs.

For example, if you are saving for a major milestone, like buying a new car or a down payment for a house, an add-on CD might be a good option. This way, you can start your CD even if you don’t have a large sum of money set aside and continue to make deposits before it matures. 

If you are saving towards a shorter-term goal, you might want to consider a no-penalty CD in case you need to access your funds before maturity. This way, you won’t have to worry about early withdrawal penalties, but you will still be growing your savings and working towards your goal.

While CDs offer many options to help reach your financial goals, it’s important to choose one that best suits your needs. The Raisin marketplace gives you access to a variety of CDs with competitive interest rates so you can find one that works best for you. The best part is, you can compare rates and features all in one dashboard! Sign up today and get closer to your savings goals.

Add-on CDs can be a smart way to boost your savings with predictable earnings. Understanding the pros and cons can help you determine if an add-on CD is the right option for you. While the Raisin platform does not currently offer access to add-on CDs, you can find a variety of fixed-rate and no-penalty options and explore different ways to boost your savings.

If you’re ready to open a CD or other high-yield savings account, Raisin is here to support. The Raisin marketplace gives you access to multiple types of CDs and other savings products with competitive interest rates, so you can find what best suits your needs. Sign up today and start maximizing your savings potential!

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.