If you think you know your way around certificates of deposit (commonly referred to as CDs), here’s a twist to this savings product you may not be aware of – an add-on CD.
As a quick refresher, a CD is also known as a "time deposit" or a "term deposit" because it's set for a certain period of time. The depositor can choose which term they want to go into. CDs are a great way to earn a competitive interest rate (rates for CD accounts are typically higher than traditional savings accounts or money market accounts) and know that the rate will remain in place for the entire duration of the CD term.
But what if you want to see your savings grow faster? Wouldn’t it be a shame if you came into some money and wanted to take advantage of a great CD rate you locked in 6 months ago? Well, if you opened a traditional CD, you’d be out of luck. Once you make your initial opening deposit with a traditional CD, you can’t add money to it during the CD’s term. But that’s not the case with an add-on CD. With an add-on CD, you can continue to pump money into the account throughout the locked-in time period.
As you can imagine, an add-on CD can be extremely helpful during a period of time when interest rates are expected to fall. For instance, say you opened a 24-Month Traditional CD last year, and you’d like to open another, but the interest rate has taken a nose dive. You could end up earning a much lower interest rate for those new funds compared to the money already sitting in your initial CD. If you had opened a 24-Month Add-On CD however, you could invest your additional funds there, and earn interest on them at the same higher rate you locked in at account opening.
An add-on CD can also be a good option if you don't necessarily have a large amount of money to place in a traditional CD all at once. Maybe at the beginning you only have $1,000 to open the CD, but you know that you’ll have extra funds to devote to it in the coming months. Having one add-on CD can also be easier to manage and track than having your funds scattered across a multitude of CD products with varying expiration dates.
As is the case with traditional CDs however, it’s important to note that with an add-on CD you’ll typically be charged a penalty if you withdraw your funds before the CD matures.
At Bank5 Connect, we offer an add-on CD with a two year term, called the 24-Month Investment CD. This add-on CD requires a $500 minimum deposit, and after that you can add funds to it any time you’d like, in any amount. And all Bank5 Connect CDs, regardless of term length, are insured up to $250,000 by the FDIC, and insured past $250,000 by the Depositors Insurance Fund (also known as DIF). This means that at Bank5 Connect, your CD deposits are insured in full. To learn more about all of the CDs offered at Bank5 Connect, visit https://bank5connect.com/Products/CDs.
For many people, an add-on CD can be a great way to save, but keep in mind that it’s always a good idea to consult with a tax advisor or financial professional before making any major investment decisions.