Is an Add-on CD for You?
An Add-on CD is a certificate of deposit with a fixed or variable rate where you can continue to make deposits over the term of the CD.
A little later we’ll get into the purpose for investing in an Add-on CD, but for now let’s look at some of the differences in order to understand what you’re investing in.
While there are no basic differences between a fixed or variable CD or an Add-on fixed or variable CD in and of themselves, the obvious difference is the adding of money to the certificate during its term, otherwise it functions as a normal CD with all its usual functions and protections.
The difference you’re looking for is like any other CD, where there are minimum opening deposits, and also in some cases, minimum additional deposits. There are also some Add-on CDs which require a minimum amount on a monthly basis. For example, you may be required to add $50 a month for the duration of the certificate. This isn’t bad if it falls within the parameters of your investment strategy.
As with any CD, you must be aware of the automatic renewal window, which allows only a certain amount of days to close the CD or allow it to renew.
So why bother with a CD like this at all? In our existing economic conditions, cash is the ultimate contrary asset to hold in the world right now, and so is a good time to hold some, as many people in America are starting to do.
To that end, all of us should have a stash of cash socked away for emergencies, possibly even a little higher than the usually suggested three to six months worth in normal economic times in case of unexpected circumstances. If you’re able to, I would even put away as much as nine months to a years’ worth of cash to protect yourself against the poor economy.
With that in mind, why an Add-on CD works so great is it gives you the option of putting away and building up cash in a way that forces some discipline on you. If you attempt to take it out, you’re hit with a stiff penalty, which is good in my estimation, as it keeps you from spending it on whims and not on truly unexpected things as the consequence of hard times.
One other nice thing about an Add-on CD is it allows you have a shorter waiting period for your money as the CD matures. In other words, if you pay some into it every month, that means it’ll be less time you have to wait for your money as it continues to bear interest for you and build up your personal cash reserves.
If you have a safer investment that could provide better and more flexible returns, you could then put your cash in that to continue to build it up without having to wait long periods of time with all your money. So money you put in over the last several months of an Add-on CD is only tied up for that period of time until the CD matures, and then you can decide from there what your next step will be in reference to building up your cash reserves.
The point is an Add-on CD is a great place to build up your cash on a monthly basis without tapping into it like you easily could with a money market fund or money market account. That’s a good discipline to have when it’s imperative to have some cash on hand during these difficult economic times.
Tags: cds, certificate of deposit, certificate of deposits, saving money, saving strategies, savings, savings plan, savings plans
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