Can You Add to Your CD Balance Regularly?
Traditionally, you can only add to your CD after it’s matured and before you choose to reinvest it or before you lock in your CD for the set term. The only type of CD you can add money to regularly is an add-on CD. However, there are loopholes such as laddering CDs that can help you build your retirement investments, even if your CD is set in place.
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Stephen Kates, CFP®
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- Published: March 17, 2023
- Updated: June 30, 2023
- 5 min read time
- This page features 5 Cited Research Articles
- Edited By
Can You Add Money to a CD Regularly?
Cameron Valadez, CFP®, CPFA, AWMA®, the co-founder of Planable Wealth, offered RetireGuide insight on add-on CDs. “Add-on CDs are the only type that you can add to your CD balance, and they are particularly difficult to find. They will likely pay lower interest rates than a traditional bank or brokerage CD.”
CDs offer decent interest rates due to the risk of keeping a large chunk of your investment fund locked away for a specific term. If you have access to adding to your CD regularly, you have a more flexible arrangement. This is why add-on CDs have a lower interest rate.
So generally, unless you have an add-on CD, there are only two standard points when you can add money to your CD — when you first open your CD and are still determining your initial investment amount, and right after your CD reaches its maturity date.
Once your CD has matured, you can reinvest your initial deposit, any interest you’ve earned, along with any other funds you’ve gathered, into a new CD. For example, with American Express, you have a 10-day grace period — which falls right after your CD has matured — when you can add or withdraw funds from your CD without facing a penalty, before it automatically renews.
When you invest your money into a CD, you should be prepared to leave it untouched until it’s reached maturity to avoid any penalty fees.
“Add-on CDs are the only type that you can add to your CD balance, and they are particularly difficult to find. They will likely pay lower interest rates than a traditional bank or brokerage CD.”
Strategies for CD Savings
If you want to maintain the low risk of CDs, while also prioritizing easier access to your funds, there are two strategies to consider. You can either purchase an add-on CD or ladder multiple CDs.
Since an add-on CD allows you to add to your balance regularly, there’s an opportunity to grow your funds faster with your set interest rate.
For example, say you put $1,000 into a traditional, one-year CD with a 1% interest rate. By the time your CD matures, your funds will have grown to $1,010.00.
However, let’s say you have the same term length, deposit amount and interest rate, but you invest it in an add-on CD instead of a traditional CD. A few months into your CD term, you decide to invest another $2,000.
Since you have an add-on CD, you can add the $2,000 to your CD balance. The interest rate will now reflect upon your new balance of $3,000 instead of the original $1,000. This means, you will end up with $30 in interest by the time your CD matures instead of the initial $10.
Building a CD ladder is a unique financial strategy that allows you to reap the benefits of long-term interest rates while having quicker access to your funds.
“If you buy multiple CDs with different maturity dates and interest rates, you hedge the risk of having the interest rate on just one CD drop later, and you also have more liquidity to access money in your CDs as needed,” Barbara O’Neill, CFP®, CEO of Money Talk and author of Flipping a Switch, a guide to financial wellness later in life, told RetireGuide.
Instead of buying one five-year CD with $10,000 and one set interest rate, you could purchase four CDs with different maturity dates, interest rates and $2,000 deposited in each.
As each CD reaches maturity, you can have access to your money. But at least one of the CDs in your ladder should have a long-term maturity date so you can benefit from a higher interest rate.
“If you buy multiple CDs with different maturity dates and interest rates, you hedge the risk of having the interest rate on just one CD drop later, and you also have more liquidity to access money in your CDs as needed.”
Alternate Saving Methods
There are alternatives you could consider if you’re looking to bulk up your retirement nest egg. You can open an individual retirement account (IRA), high-yield savings account or even utilize a life insurance policy for investment purposes.
When considering alternative saving methods, keep in mind that a CD, IRA and high-yield savings account may all be FDIC insured for up to $250,000 depending on your bank. A life insurance policy, on the other hand, is not FDIC insured.
Permanent life insurance — which are universal or whole life policies — have a cash value component. The cash value component earns interest, and you can withdraw or borrow from the funds in specific situations.
You should only consider a permanent life insurance policy as an investment vehicle if you’ve maxed out your other options, since permanent life insurance can be costly. But if you already plan on purchasing a permanent policy, the cash value component is a beneficial alternative savings method.
Consult with a financial planner before considering a life insurance policy as an investment tool.
Individual Retirement Account (IRAs)
An IRA is a trustworthy alternative to a CD. Depending on the type of IRA you choose, your deposit will grow tax free or tax deferred.
You can typically access your IRA at any time. However, all IRAs have a 10% penalty if you access your funds before you’re 59 1/2 years old, according to U.S. News.
Keep in mind that the interest rate for an IRA will be less than a CD. This is because you can’t access the money in your CD for a set period of time.
High-Yield Savings Account
A high-yield savings account can offer high interest rates that fluctuate over time. Your interest is compounded either daily or monthly.
While a high-yield savings account isn’t as restricted as a CD, there are still limits on how often you can access your funds. You can withdraw or transfer funds up to six times per month, according to CNBC.
You could also consider getting both a high-yield savings account and a CD to diversify your retirement investment portfolio.
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5 Cited Research Articles
- Gravier, E. (2023, February 10). What a High-Yield Savings Account Is and How It Can Grow Your Money. Retrieved from https://www.cnbc.com/select/high-yield-savings-account/
- American Express. (2023). Can I Add Additional Funds to a CD Once It’s Been Opened? Retrieved from https://www.americanexpress.com/en-us/banking/online-savings/faq/funding-cd/
- Space Coast Credit Union. (2023). How CD Laddering Works and Benefits of this Savings Strategy. Retrieved from https://www.sccu.com/articles/personal-finance/how-cd-laddering-works-saving-benefits
- Brandon, E. (2022, December 27). 12 Ways To Avoid the IRA Early Withdrawal Penalty. Retrieved from https://money.usnews.com/money/retirement/slideshows/ways-to-avoid-the-ira-early-withdrawal-penalty
- Federal Deposit Insurance Corporation. (2021, July 1). Are My Deposit Accounts Insured by the FDIC? Retrieved from https://www.fdic.gov/resources/deposit-insurance/financial-products-insured/