What is an add-on CD?
Key takeaways
- An add-on CD lets you make additional deposits after opening the account, unlike standard CDs where you can only deposit money once.
- You’ll still get a fixed interest rate for the entire term, just like with regular CDs.
- Add-on CDs typically have lower APYs than traditional CDs but often feature lower minimum opening deposits.
- They’re ideal for savers who want to build funds gradually or those with irregular income streams.
Ever wished you could keep adding money to your CD after you opened it? That’s exactly what an add-on CD lets you do. Unlike traditional CDs that only allow one deposit at the beginning, add-on CDs give you the flexibility to keep building your savings while still locking in a fixed interest rate.
What is an add-on CD?
An add-on CD is a special type of CD that offers more flexibility than a traditional CD by allowing additional deposits throughout the CD term. With standard CDs, you make a single deposit when opening the account and can’t add more money until the CD matures.
Like traditional CDs, add-on CDs lock in a fixed annual percentage yield (APY) for the entire term, which applies to both your initial deposit and any additional deposits you make. This fixed rate remains the same regardless of market fluctuations throughout your CD term.
The ability to make additional deposits makes add-on CDs best for savers who want to gradually build their funds while still earning a guaranteed return. Keep in mind that like traditional CDs, you’ll typically face early withdrawal penalties if you withdraw your money before the maturity date.
Expert tip: When to choose an add-on CD
“I generally recommend add-on CDs for people who want to save consistently but don’t have a large lump sum to begin with. They’re perfect when you’re building toward a specific goal with a clear timeline, like a down payment or vacation that’s 12–24 months away. The ability to add money over time while keeping everything at the same interest rate makes your savings strategy simpler.”
— Hanna Horvath, CFP
How add-on CDs work
Opening an add-on CD follows a similar process to opening a traditional CD. You deposit your money for a set term at a fixed APY, but with the added benefit of being able to make additional deposits throughout the term.
For example, you could open an add-on CD with a two-year term with an APY of 3 percent. You make an initial deposit of $2,500 and plan to deposit another $500 each month until the CD matures. After the two-year term ends, you’d have saved $14,500 and earned around $500 in interest.
The interest calculation on an add-on CD becomes more complex than with traditional CDs because each new deposit earns interest for a different length of time. While the APY remains fixed, the total interest earned depends on when additional deposits are made throughout the term. You can use Bankrate’s CD calculator to determine how much interest you’ll earn throughout a CD’s term.
Each financial institution sets its own rules regarding:
- Minimum initial deposit requirements
- Deposit frequency limitations (if any)
- Maximum deposit limits (if any)
- Methods for making additional deposits
Learn more about different CD types from Bankrate.
How often can I add money to an add-on CD?
Most add-on CDs allow you to make additional deposits as often as you like throughout the term, though policies vary by financial institution. Some may restrict deposits to certain intervals (monthly or quarterly) or impose limits on the total amount you can add.
Before opening an add-on CD, carefully review the terms and conditions to understand:
- Deposit frequency limitations
- Minimum additional deposit requirements
- Maximum balance caps
- Accepted deposit methods (direct deposit, transfers from linked accounts, etc.)
Pros and cons of add-on CDs
Like all financial products, there are pros and cons that come with an add-on CD.
Pros
- Fixed interest rate: Your money earns the same fixed rate regardless of market fluctuations.
- Lower initial deposit requirements: Many add-on CDs have lower minimum opening deposits than traditional CDs.
- Flexibility to add funds: You can continue building your savings after opening the account.
- Disciplined saving option: The early withdrawal penalties encourage you to keep saving towards your goal.
Cons
- Lower APYs than traditional CDs: The flexibility to add funds typically comes with slightly lower interest rates.
- Early withdrawal penalties still apply: You’ll usually face penalties for withdrawing money before maturity.
- Limited availability: Fewer financial institutions offer add-on CDs compared to traditional CDs.
- No rate increases if market rates rise: If interest rates increase during your term, you’re locked into your original rate.
CD ladders vs. add-on CDs
Both CD ladders and add-on CDs offer strategies to make CD investing more flexible, but they work in different ways:
CD laddering involves dividing your money among multiple CDs with staggered maturity dates. This strategy provides periodic access to a portion of your funds as each CD matures, allowing you to either withdraw the money or reinvest it at current rates. Learn more about CD ladders here.
Add-on CDs allow you to make additional deposits to a single CD throughout its term, but you still can’t access your money without penalty until maturity.
You can actually combine these strategies by creating a ladder of add-on CDs. This would give you both the ability to add funds throughout the terms and the flexibility to access portions of your money as individual CDs in the ladder mature.
Where to open an add-on CD
Add-on CDs are offered by select banks and credit unions nationwide. Here are some financial institutions currently offering add-on CDs:
Before opening an add-on CD, compare rates across multiple banks and credit unions. Many credit unions require membership, which may be based on where you live, work or other factors. Compare today’s best CD rates from Bankrate.
When does an add-on CD make sense?
Add-on CDs can be particularly beneficial in these scenarios:
1. You have limited funds to start with. If you don’t have a large sum to deposit initially but want to take advantage of CD rates, an add-on CD lets you start small and build over time. These accounts typically have lower minimum opening deposit requirements than traditional CDs.
2. Your income is irregular or seasonal. For those with fluctuating income — like freelancers, commission-based workers or seasonal employees — add-on CDs allow you to make deposits when you have extra cash flow while maintaining a fixed rate.
3. Interest rates are favorable. During high-interest rate environments, locking in a competitive rate while maintaining the ability to add more funds can be advantageous.
4. You want a disciplined savings approach. The structure of an add-on CD, with its fixed term and penalties for early withdrawal, can help enforce savings discipline while allowing continued contributions.
5. You’re saving for a specific goal with a timeframe. If you’re building funds for a specific purpose with a known date — like a down payment, wedding or tuition payment a few years — an add-on CD aligns well with gradual saving toward that goal.
However, add-on CDs aren’t suitable for emergency funds or when you might need quick access to your money. Consider a high-yield savings account instead if liquidity is important.
Bottom line
Add-on CDs offer a middle ground between the rigidity of traditional CDs and the flexibility of savings accounts. They allow you to lock in a fixed rate while continuing to grow your savings over time, making them best for those who want to build their savings gradually.
Before opening an add-on CD, compare rates and terms across different banks, as features can vary. Consider how the CD fits with your financial goals and whether the early withdrawal penalties align with your potential need to access the funds before maturity.
