An add-on CD allows you to make one or more additional deposits to your CD before it matures. For a typical CD, you open the CD with a certain amount, and you’re not allowed to make additional deposits until the CD matures. The add-on CD is most useful as a little protection against falling interest rates. If rates fall during the add-on CD term, you can always fall back on the add-on CD. Instead of opening a new CD, you can just deposit the funds into the add-on CD.
Unfortunately, add-on CDs are rare, and they have become less common in the last few years due to the interest rate environment. Back in 2008 one of my local credit unions had offered a 5-year add-on CD. I jumped on that deal, and it proved useful as interest rates fell. I think too many people also jumped on this deal. The credit union removed the add-on feature to all of its long-term CDs. Now only its 1-year CD allows add-on deposits.
The most useful add-on CDs have long terms and allow unlimited additional deposits. Any number of deposits of any size can be made to the CD during its term. Unfortunately, it’s common for banks to limit the number of add-on deposits.
CIT Bank’s Achiever CDs
CIT Bank is one of the few internet banks that offers add-on CDs. Its Achiever CDs allow you to make one additional deposit of any size during the term. Restricting the number of deposits to just one is a downside. This may cause you to wait for several months before you accumulate all of the funds that you want to deposit. Another downside with the Achiever CDs is a minimum initial deposit of $25,000. This makes the add-on CD less useful as a form of protection against falling rates. You have to commit a sizeable amount for the initial deposit.
CIT Bank Achiever CDs have another feature in addition to allowing an add-on deposit. They allow you to bump-up the rate one time during the term. They allow for one rate bump. If the Achiever CD rate goes up, you can take advantage of the higher rate.
CIT Bank offers Achiever CDs with terms of one and two years. As I mentioned above, add-on CDs with long terms are more attractive.
Bank5 Connect’s 2-Year Investment CD
The new internet bank, Bank5 Connect, has a 2-year add-on CD that it calls an Investment CD. Minimum deposit is $500. It allows additional deposits of any amount at anytime during the term of the CD. You can also set up automatic deposits from your Bank5 Connect’s checking or savings account into this Investment CD.
Bank5 Connect’s Investment CD has one big advantage over CIT Bank’s 2-year Achiever CD. The Investment CD has a minimum deposit of only $500. That’s 50 times less than the Achiever CD. This makes the Investment CD a much better product to use as protection against falling rates. If you want to protect yourself against falling rates, just open the Investment CD with $500. If rates happen to go up, just don’t add to the CD. With only $500, you have very little interest to lose (compared to what you could have earned with higher rates). However, if rates do fall or even if they remain about the same, you’ll find the add-on CD to be very attractive.
Here’s an example of how useful the Investment CD can be. Let’s say you have CDs maturing one year from now. Open the Investment CD today with a $500 deposit. Let’s say short-term CD rates stay the same over the next year. When those CDs mature, you decide that you don’t want to lock in that money into a long-term CD. You decide you don’t want terms longer than one year. You can either open a new 1-year CD or you can add to your 2-year Investment CD. You will probably find that the 2-year Investment CD has a higher rate than any 1-year CD rate. So adding to the Investment CD becomes the obvious best choice.
Your Best Add-On CD?
Have you benefited from add-on CDs? What was the best add-on CD that you had?