Certificates of deposit (commonly referred to as CDs) can be a good way to earn interest on money you don’t need immediate access to, since they’re viewed as a safe investment opportunity, and typically have higher interest rates than traditional savings accounts and money market accounts. But, what if you want to help reach your savings goals by adding money to your CD account on an ongoing basis? While most traditional CDs don’t allow you to add funds to the account after it’s opened, there is a type of CD called an add-on CD that lets you do exactly that.
Before we get ahead of ourselves, let’s review some traits of a traditional CD. You place a lump sum into this type of savings product when you first open it, and then let it sit there for a set amount of time, earning interest at a locked-in rate along the way. Once that time period expires, you can withdraw the money or roll your balance over into another CD.
An add-on CD provides more flexibility than a traditional CD in that you can place additional money into it at any given time, not just at account opening. For instance, BankFive offers an add-on CD with a two year term called the 2-Year Investment CD. This CD requires a $100 minimum deposit to open the account, and after that, deposits can be made at any time during the CD term in as little as $10 increments. Also, all of BankFive’s CDs, including the 2-Year Investment CD, are insured up to $250,000 by the FDIC, and insured past FDIC limits by the Depositors Insurance Fund (DIF). This means that all of your CD deposits at BankFive are insured in full.
Another advantage of an add-on CD is that it lets you take advantage of the initial locked-in rate for additional deposits, for the entire CD term, even if interest rates start to decline during that time. Think about it, if you open a 2-Year Traditional CD at a rate of 0.65%, and then 6 months later you have an additional $500 you’d like to invest, you could find that the rate of that 2-Year CD product has declined to 0.55%. Since you can’t add the funds to your existing traditional CD, you’re faced with the option of opening another one at the lower rate. However, if you had initially opened a 2-Year Add-On CD at the 0.65% rate, you could simply add the $500 to your existing account and still take advantage of the 0.65% rate you opened with.
The flexibility of add-on CDs gives you many options to help reach your savings goals. For example, you could add funds on a regular basis. Maybe you’d like to earmark a specific amount from each paycheck to deposit into your CD. You could also deposit any extra money you come into throughout the CD’s term. For example, if you receive a sizeable tax return, or an unexpected financial windfall comes your way, you could shelter a portion of that money in your CD.
When considering an add-on CD however, it’s important to remember that an add-on CD, like its cousin the traditional CD, typically does not allow for early withdrawal of the account’s funds. What this means is that you’ll need to wait until your CD matures before you withdraw the money, or you could face penalty fees.
To learn more about BankFive’s array of CDs, including our 2-Year Investment CD, visit https://www.bankfive.com/Personal/Save/Certificates-of-Deposits-(CDs). But keep in mind that it’s always a good idea to consult with a tax advisor and/or a financial consultant before making any major investment decisions!