Can You Keep Putting Money Into a CD?

A Certificate of Deposit (CD) is a savings account where a fixed amount of money is held for a set period, earning interest. CDs offer predictable terms and fixed interest rates, providing a stable savings option. They typically offer higher interest rates than traditional savings accounts because funds are committed for a set duration.

How Standard Certificates of Deposit Work

Most Certificates of Deposit function as single-deposit instruments. A lump sum is deposited at account opening, and additional funds generally cannot be added during the CD’s term. The initial deposit establishes the principal amount. The financial institution locks this amount for a fixed term, ranging from a few months to several years. During this period, a fixed interest rate is applied, and interest typically compounds regularly.

Standard CDs include a penalty for early withdrawal. If funds are accessed before the maturity date, investors typically forfeit a portion of the interest earned. The specific penalty is outlined in the CD’s terms and conditions and varies by institution and term length. When a CD matures, the principal and earned interest become available. Investors can withdraw the funds, roll them over into a new CD, or transfer them to another account. Financial institutions usually provide a grace period after maturity for the investor to decide on their next steps without penalty.

CDs That Allow More Deposits

While most CDs are single-deposit accounts, some less common types offer the flexibility of additional contributions after the initial deposit. Add-on CDs are designed to allow investors to contribute more funds throughout the CD’s term. These CDs typically permit subsequent deposits, often with minimum and maximum limits on the amounts or frequency of these additional contributions. All deposits made into an add-on CD usually earn the same fixed Annual Percentage Yield (APY) as the original deposit, allowing the overall balance and interest earnings to grow over time.

Another type, bump-up CDs, primarily offers the ability to increase the interest rate once during the CD’s term if market rates rise. Some bump-up CD offerings may include a limited window or specific conditions under which additional deposits can be made. However, this is not a universal feature of bump-up CDs, and their initial interest rates can sometimes be lower than traditional CDs. Individuals considering these types of CDs should review the specific terms and conditions provided by the financial institution, as features and limitations can vary significantly.

Strategies for Ongoing CD Savings

For individuals seeking to save money continuously using Certificates of Deposit, with their typical single-deposit structure, several practical strategies can be employed. A widely used approach is CD laddering, which involves opening multiple CDs with staggered maturity dates. For example, an investor might divide a lump sum into several CDs with terms like one, two, three, four, and five years. As each shorter-term CD matures, the funds, including earned interest, can be reinvested into a new, longer-term CD, often at the longest rung of the ladder, potentially capturing higher interest rates. This strategy provides regular access to a portion of the funds as CDs mature, while maintaining the benefits of higher rates typically associated with longer terms.

Another straightforward strategy for ongoing CD savings is opening new, separate CDs whenever additional funds become available for long-term savings. Instead of attempting to add to an existing CD, which is usually not permitted, a new CD can be initiated with the fresh funds. This allows each new deposit to lock in the prevailing interest rate at that time. To facilitate consistent saving, individuals can set up automated transfers from a checking or savings account. These recurring transfers can be directed to fund new CDs as desired, or accumulate in a separate savings account until enough is gathered to open a new CD. This disciplined approach helps ensure that savings are regularly channeled into interest-bearing CD products.