Can You Keep Adding Money to a CD?

Certificates of Deposit (CDs) offer a fixed interest rate for a specific duration. While traditional CDs generally do not allow new deposits after initial funding, specialized types are designed to accommodate further contributions.

How Traditional CDs Work

A traditional Certificate of Deposit is a time deposit where a single, lump-sum amount is invested for a predetermined period at a fixed interest rate. The financial institution and depositor agree on the principal, annual percentage yield (APY), and maturity date at opening. Interest earned on the CD is typically taxable as ordinary income in the year it is credited, even if not withdrawn.

Traditional CDs do not accept additional deposits once established. The initial deposit is locked in, and interest calculations are based on that principal for the entire term. This fixed nature allows banks to offer higher interest rates compared to standard savings accounts. CDs are generally insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per institution, for each ownership category, providing security.

CDs Allowing Additional Deposits

While most traditional CDs restrict additional deposits, specific product offerings provide this flexibility. These are commonly known as “add-on CDs” or “flexible CDs.” Unlike conventional CDs, add-on CDs permit depositors to contribute more money to the account after the initial deposit, throughout the CD’s term. This feature benefits individuals who anticipate having more funds to save over time but wish to lock in a specific rate.

Flexible CDs allow an initial deposit to establish the account, with subsequent deposits permitted. Financial institutions may impose limitations on these contributions, such as minimum/maximum amounts or frequency restrictions (e.g., monthly or quarterly). The interest rate on add-on CDs is usually fixed at opening and applies to all deposits. Some variations, like “Flex CDs,” might offer options for a one-time rate increase or penalty-free withdrawals under specific conditions. Add-on CDs often have lower initial deposit requirements than traditional CDs, making them more accessible.

Options for New Investments

For individuals with additional funds who cannot add them to an existing traditional CD, practical strategies exist for continued CD investing. A straightforward option is to open a new, separate CD with the new money. This allows the investor to take advantage of current interest rates for the new deposit, independent of any existing CDs. Each new CD operates under its own terms, including its specific interest rate and maturity date.

Another strategic approach is CD laddering. This involves dividing a sum of money and investing it into multiple CDs with staggered maturity dates. For example, an investor might purchase CDs maturing in one, two, and three years. As the shortest-term CD matures, funds can be reinvested into a new, longer-term CD. This strategy helps manage interest rate risk by providing regular access to maturing funds for reinvestment at prevailing rates, while balancing liquidity and earning potential.