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What is an add-on CD?

These CDs allow you to make additional deposits throughout the term — but they’re not without drawbacks.

Yahoo Personal Finance· Getty Images
Sarah C. Brady
·Contributor
3 min read

CDs are usually the kinds of bank accounts you set and forget. With a CD, you make an initial deposit and then leave the money alone for a set amount of time, and you know up-front how much interest you'll earn.

With add-on CDs, however, the rules are a little different. You get more flexibility with these CDs since you're allowed to add money to the account after the initial funding, which means you can increase your earning potential.

The downside — and it's a big one — is that the interest rates are usually lower for add-on CD accounts than traditional CDs. Plus, not many banks or credit unions offer them.

Is an add-on CD right for you? Read on to learn more.

Add-on CDs, or add-to CDs, are very similar to traditional CDs. The major difference is they give you the ability to add money after you make your initial deposit. Depending on the bank and the account, there might be minimum requirements or limits on how much and how often you can deposit, but you can usually make a monthly contribution.

Add-on CDs are also different from traditional CD accounts because they have relatively low minimum deposit requirements, sometimes starting around $100 versus the typical $500 to $1,000. Like many non-traditional types of CDs, they also have comparatively low annual percentage yields (APYs).

However, you can still expect some of the standard features you get with just about any CD type:

An add-on CD is only worth it if the CD offers higher APY than you can find elsewhere. You're most likely to find a competitive rate on an add-on CD if you have very little cash (around $100 to $500) for your initial deposit.

If you do find an add-on CD account with high APY, it's only a better option than a traditional CD if you know — without a doubt — you'll keep adding money to the account. For example, let's say you're saving up to buy a home in a year or two, and you're already making a monthly deposit to your down payment fund. Instead of putting the money into a savings account, you can potentially earn more interest with an add-on CD.

See our ranking of the best CD rates and accounts on the market today>>

If an add-on CD isn't the right fit, there are plenty of other ways to earn decent returns on your savings. For higher APY or more flexibility, you might try one of these options instead:

  • CD ladder: With a CD ladder, you open multiple CDs with staggered maturity dates. This can allow you to earn a higher effective APY on your deposits and also lets you tap into some of your cash sooner, without early withdrawal penalties, when the shorter-term CDs start to mature.

  • High-yield savings account (HYSA): Some of the best high-yield savings accounts offer interest rates comparable to or higher than add-on CDs. Plus, you won't have to worry about early withdrawal penalties with these accounts, which makes them great for depositing emergency savings. Just know that rates aren't fixed on HYSAs, so they can change from time to time.

  • Treasury bills: Treasury bills offer comparable interest rates and maturity terms to CDs. However, you have to pay both state and federal income taxes on your CD returns, while T-Bills only require you to pay federal taxes.