Add-on CD

Certificates of Deposit or CDs are a very popular method of investing. They are a much safer investment opportunities than others that are available and often pay higher interest rates than various other types of savings accounts. Traditionally when you purchased a CD you would not have the opportunity to add or withdraw any funds until that CD reached its maturity point. Today however, things are much different and many banks and other financial institutions offer more flexibility to CD investments. Add-on CDs are a commonly chosen investment tool today.

Add-on CDs allow you to place additional funds into your CD account after the initial purchase date. These added funds will typically bear the same interest rate as the initial funds when you purchased the CD. This gives you the opportunity to get a guaranteed minimum interest rate even if the rates drop in the future. Many financial institutions do require that add-on CD funds are more than $500 but you can check around at various institutions and see what the minimum requirements for adding on to your CD will be with each institution.

Generally, CDs are fixed-rate time deposits. A bank or credit union will pay you a guaranteed amount of interest in return for you depositing your money into the CD account and leaving it there for a specific amount of time. Traditional Certificates of Deposit work much like negotiable bonds because the amount and terms of the deposit are determined beforehand and they are not variable. Add-on CDs allow you to place additional funds into your CD account so that you will see a higher return when the CD matures.

Another type of CD is the liquid CD. These are also known as penalty-free Certificates of Deposit and are a variation of add-on CDs. With liquid Certificates of Deposit you can add money to the CD as well as withdraw money periodically. Note that most institutions require that you provide them with advanced notice prior to the withdrawal and you are required to maintain a minimum dollar amount in the CD account at all times. If you do not follow these requirements then you may notice that the interest rate on your CD account can be lowered by as much as an entire percent. Liquid Certificates of Deposit normally pay less in interest than traditional CDs but they offer higher payouts than money market accounts in most cases.

There are a number of benefits to choosing CDs that offer add-ons. You have the advantage of knowing that your interest rate will remain intact and earning on the funds that you add to the account without needing to purchase a number of smaller CDs in order to invest. Since larger CDs typically pay higher amounts, this is a major advantage. Liquid CDs may also offer a bit of protection against being locked out of rate increases. You have the opportunity to shift a portion of your funds into other accounts when you want to capture those higher interest rates.

Liquid CDs as well as add-on CDs are insured by the FDIC just like traditional CDs. This means that they are secure investments. You should be sure to read any terms and conditions on CDs very carefully before you purchase however since some flexible CDs may offer additional advantages that others do not. These CDs may also have disadvantages. Variable rate CDs can rise and fall and the bank or financial institution where you purchase them will only guarantee a floor rate for the CD. You should also check to see if the CD has a call feature. This feature allows the bank to redeem a Certificate of Deposit before it matures. Banks often call on this feature when rates drop substantially. Overall, take your time and research a few different financial institutions when purchasing add-on CDs to ensure that you get the specific investment tool that you need.

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