What Is an Add-On CD?

An add-on CD is a type of certificate of deposit that lets you add additional money to your account once it’s open.

Here’s a closer look at how add-on CDs work and where to find them.

Definition and Examples of an Add-On CD

An add-on CD is a type of certificate of deposit that lets you make additional deposits over time. In other words, you can keep “adding on” to your account even after it’s open.

For example, may offer an add-on CD with a 24-month term that requires at least $500 to open an account, and you can deposit additional funds at any time.

How Does an Add-On CD Work?

Add-on CDs work like traditional CDs: You open one at a bank, lock in a fixed interest rate, and fund your account with an initial deposit. You watch your money grow until your CD matures. At that point, you may be able renew it for another term or transfer it to a different account.

The only difference is, with an add-on CD, you can keep depositing more money into your account even after you open it. This makes it an excellent option for anyone who can’t—or doesn’t want to—save up for a substantial initial deposit. It’s also suitable for anyone who wants to add to their account as they come into more money.

How To Get Add-On CDs

Add-on CDs aren’t nearly as popular as traditional ones, so you may have to dig to find out which banks offer them. Some places you can find add-on CDs are:

• Bank5 Connect
• First Horizon
• Bank of the West
• BMO Bank

Online and physical banks both offer add-on CDs, so if you prefer to use the services of a local bank rather than an online banking service, check with your local branches.

Pros and Cons of Add-On CDs

Pros Explained

• Make additional deposits as you go: Add-on CDs are great because you can add more money to them, just like a regular savings account. So, if you open an add-on CD now, then get a big bonus at work or free up extra money in your budget next month, that’s okay. You can add that to your CD without having to open up a new one.
• Interest rate is locked in: Similar to regular CDs, your interest rate is locked in for the life of your term when you open an add-on CD. So if you secure a 0.8% APY and interest rates plummet the next month, you still get that same rate.
• Enjoy a lower minimum opening deposit: Many traditional CDs require $1,000 or more opening deposits. But the good news is add-on CDs have opening deposits much lower than this. For example, BECU’s add-on CD has a $100 minimum opening deposit. Bank5 Connect and First Horizon’s add-on CDs have $500 minimums.
• Federally insured and protected: Same as with regular CDs, add-on CDs are insured through the Federal Deposit Insurance Corporation (FDIC) if you open one with a bank, or the National Credit Union Administration (NCUA) if you open one with a credit union. In the event your financial institution was to close, you’d be covered for up to $250,000 across all your deposits at the bank or credit union.

Cons Explained

• Banks often limit how and when you can make additional deposits: Some banks limit how often you can make additional deposits to an add-on CD. Others only let you make additional deposits from specific accounts. For example, First Horizon’s add-on CD only allows additional deposits of $25 or more—and that money must be transferred from a First Horizon Bank checking, savings, or money market savings account.
• Early withdrawal penalties still apply: You’re still “locking” away your money for a set period when you open an add-on CD. This can be good if you don’t want to be tempted to spend your savings. However, it could backfire if you need your money before maturity—because you could face early withdrawal penalties. These penalties are often equal to a few months' worth of interest.
• Add-on CD rates may be lower than traditional CDs: Add-on CDs come with a lot of flexibility, but this flexibility can come at a cost. In this case, the cost may be lower interest rates.

Alternatives to an Add-On CD

If you can’t find an add-on CD you like, you still have a few options.

CD Ladder

One choice is a CD ladder. This is a strategy where you open multiple CDs at various times to mature in regular intervals, such as once a month, to create an income stream.

High-Yield Savings Account

Some high-yield savings accounts offer better interest rates than CDs, making them excellent alternatives to add-on CDs. You still get the freedom to make additional deposits as you wish, but you can also withdraw money at any time without penalty (making it a good option for emergency funds).

One thing to note is that your interest rate isn’t locked in with a high-yield savings account. So unlike an add-on CD, it can change and fluctuate over time.