What Is An Add-On CD?

An add-on certificate of deposit (CD) is a specialty CD that allows you to earn some interest with minimal risk, with a key benefit being the ability to add more money after you’ve opened the account. This perk makes add-on CDs more flexible than standard CDs, though add-on CDs still have some restrictions and caveats to watch out for.

What is an add-on CD and how does it work?

Add-on CDs function similarly to traditional CDs but with one key difference: You can make additional deposits after opening the account. With a regular CD, you deposit money at the beginning of the term and cannot add more funds until maturity. Add-on CDs remove this restriction, allowing you to increase your balance throughout the term.

When you make additional deposits to your add-on CD, the new money earns the same fixed APY as your original deposit. This means if you opened an add-on CD at 4.00% APY, every subsequent deposit will also earn 4.00% APY for the remaining term.

For example: You open a 24-month add-on CD with $2,500 at 4.00% APY and plan to add $500 monthly. After two years, you’d have deposited $14,500 total and earned approximately $580 in interest.

Where can you open an add-on CD?

Add-on CDs are less common than traditional CDs, but several institutions currently offer them:

• Associated Bank: Fixed-rate add-on CD with $100 minimum opening deposit
• Bank5 Connect: 24-month Investment CD allowing additional deposits throughout the term
• First Horizon Bank: Add-on CDs with lower minimums than traditional CDs ($500 vs. $1,000)

Ready to explore your options? See Bankrate’s best CD rates to compare add-on CDs with traditional CDs and find the right fit for your savings goals.

Add-on CDs vs. other savings options

Add-on CDs vs. traditional CDs

Traditional CDs typically offer higher APYs than add-on CDs. Current top traditional CD rates reach over 4.25 percent APY, while add-on CDs generally offer below that amount. However, add-on CDs provide flexibility that standard CDs cannot match.

Add-on CDs vs. high-yield savings accounts

While high-yield savings accounts offer complete liquidity and rates over 4 percent APY, add-on CDs provide rate protection. If rates fall during your CD term, your rate stays fixed, unlike savings accounts where rates can decrease.

Learn more about the differences between high-yield savings accounts and CDs.

CD laddering as an alternative

If you’re considering an add-on CD for regular deposits, CD laddering might be a better strategy. This involves opening multiple CDs with staggered maturity dates, potentially allowing access to higher rates and regular liquidity.

Pros and cons of add-on CDs

Like all financial products, there are pros and cons that come with an add-on CD.

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Pros

• Fixed interest rate: If market rates for CDs were to drop, you’re guaranteed to earn the predetermined yield for the term.
• Low initial deposit requirement: Some banks may have lower minimum deposit requirements for their add-on CD products than for opening traditional CDs. For example, First Horizon Bank requires $1,000 to open a traditional CD but only half that amount to open an add-on CD.
• Money can be added after account opening: If you don’t have a large deposit to make up front, you can continuously deposit money as part of a long-term savings strategy.

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Cons

• No rate increases: As with most CDs, the money in the account has a fixed rate for a specified period. If CD rates increase during the term, you could be stuck with a lower rate.
• Traditional CDs might offer a higher rate: Choosing an add-on CD over a traditional CD may mean going with the option that has a lower yield.
• Early withdrawal penalties apply: Unless there are early withdrawal allowances specified in the CD’s terms, you’ll usually pay an early withdrawal penalty for taking money from the CD before its maturity.
• Not easy to find: Though traditional CDs are widely offered by many banks and credit unions, only a small selection offer add-on CDs.

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When does an add-on CD make sense?

Add-on CDs are a good option for savers when they might not initially have all of the funds they ultimately want to deposit. The ideal scenario for an add-on CD includes:

• You have regular but unpredictable income: If you receive sporadic bonuses, freelance payments or seasonal income that you want to save at a guaranteed rate.
• You want to try dollar-cost averaging: Similar to investment strategies, you can smooth out rate volatility by making regular deposits over time.
• You’re savings for a specific goal: When saving for a specific purchase with a known timeline but uncertain income flow.

Here are some scenarios when you may want to choose an alternative:

• You have a large lump sum available: Traditional CDs offer better rates if you can deposit your full amount upfront.
• You need liquidity: High-yield savings accounts provide better access to funds for emergency situations.
• You expect rates to rise: If you expect rates to rise significantly, shorter-term CDs or savings accounts might be better choices.

Bottom line

Once you have some savings tucked away, an add-on CD can be a practical option for storing and building up funds. Not only will your initial savings grow, but you can add to your savings along the way. After maturity, many accounts allow the account holder to renew the term, or you could use the extra savings for other investments. Keep in mind that the funds in the CD will not be available for the duration of the CD’s term. It’s a good idea to have a separate emergency fund to avoid the need to take funds out of your CD early.