Can you add money to a CD? (2024)

If you’ve been looking for a place to park your short-term savings that has better interest rates than traditional savings accounts, you may have considered certificates of deposit (CDs). Once you deposit money into a CD, you usually can’t add more during the CD’s lifetime —but you’ll find exceptions. Before you try to add money to a CD, here’s what you have to know.

What is a CD?

A CD, called a share certificate at credit unions, is a type of savings account that requires you to keep your money in a bank or credit union for a specified length of time called a term without taking a withdrawal. In exchange, you’re offered a fixed interest rate that’s typically higher than traditional savings accounts. Withdrawing money early from a CD — before the term ends — can mean paying a penalty fee to the bank or credit union.

You’ll usually need a minimum deposit of $500 to $2,500 to open a CD.

Like savings accounts, CDs up to $250,000 are protected at federally insured banks and credit unions.

How to add money to a CD

With a traditional CD, you typically make a one-time opening deposit and leave it in the account until the end of the term. You can’t continually add money to this type of CD.

However, you can opt to open an add-on CD, which allows you to make additional deposits throughout the CD’s lifetime.

What are add-on CDs?

Like a savings account,an add-on CD allows you to add money to the account after you make the initial deposit.

Banks and credit unions offer add-on CDs, but they are not as widely available as traditional CDs. As of December 2023, you can find add-on CDs at Bank5 Connect and First Horizon Bank, among other financial institutions. Rates for add-on CDs are typically lower than traditional CDs.

The financial institution’s policies will determine how often you can put money into an add-on CD. If you open a 5-year add-on CD with $1,000, for example, you may be able to add money anytime before the CD matures and deposit $500 annually until then. By contrast, if you open a traditional 5-year CD with a $1,000 deposit, only that $1,000 will earn interest.

What to consider before adding money to a CD

When you add money to a CD, you’re committing to keeping that money in the account for the length of the CD term.

“It’s extremely important to consider when you may need to access your money,” said Ed Williams, senior lead planner at Facet, a financial planning firm. “Breaking a CD,” or withdrawing money before the end of the term, typically results in paying penalties or losing interest, he added.

Pros and cons of adding money to CDs

Pros of adding money to a CD:

Competitive rates: CDs are currently paying impressive yields. Because you’re committing to keep the money in the account for a certain length of time, a CD tends to offer higher interest rates than savings or money market accounts.

Fixed interest rates: With a CD, you know exactly what interest rate you’ll receive — unlike if you put your money in a high-yield savings account, which has a variable rate that can change over time.

“Just as interest rates have risen sharply, they can sometimes fall quickly as well,” Williams said. “If that happens during the CD’s term, the bank will continue paying you the higher CD rate.”

Interest compounds: With compound interest, you earn interest on accumulated interest.

Cons of adding money to a CD:

Possible early withdrawal penalties: The penalties you pay or interest you lose to cash out a CD early can exceed any of the CD’s benefits, Williams said.

Restrictions on deposits: Your financial institution may place restrictions on certain types of add-on CD deposits, such as cash or check.

Better returns with other investments: Stocks, 401(k) plans and other options can offer higher returns than CDs, for example.

“If you can handle a little risk, there’s potential to earn a little more yield and boost your compounding interest with investment-based alternatives, such as short-term bonds,” Willians said. “Short-term bond strategies offer higher yields but may experience small price fluctuations.”

Alternatives to add-on CDs

If you can’t find an add-on CD, you can look into one of these alternatives:

• High-yield savings account: A high-yield savings account typically offers better-than-average rates on deposits.
• CD ladder: A ladder is a strategy that spreads a lump sum of money across multiple CDs with different maturity dates.
• CD barbell: This approach divides your cash into one short-term CD and one long-term CD.
• Dividend stocks: These can be a good source of additional income and can be reinvested.

Common mistakes with add-on CDs

If you want the option to add money to your CD, make sure you purchase the right type of CD. You’ll want to buy an add-on CD and not a traditional CD, which won’t allow you to make additional deposits.

You’ll also want to avoid these common CD investing mistakes:

• Not shopping for the lowest rates
• Not tracking your CD’s maturity date
• Not reviewing the CD’s terms and conditions

Tips for managing CDs effectively

Try a CD ladder or barbell approach: These investment strategies put a portion of your cash into shorter-term CDs, allowing you to access your money earlier if necessary. You’ll also be able to reinvest your funds sooner if rates rise.

Keep track of your CD maturity dates: Many banks automatically renew CDs at the end of the term if you don’t withdraw the money during the grace period, which can be as short as seven to 10 days. Missing a grace period may mean that you have to wait longer or pay penalties to access your money.

Have a separate emergency fund: The money you put in a CD will be tied up until it matures, and you won’t be able to access it easily.

Shop around for rates: “At any given time, different banks have different cash needs, which is reflected in their interest rate offers,” Williams said. “Each bank’s interest rate offer represents their bid for new deposits. To earn more interest, go with one of the highest bidders.”