Can You Add to an Existing Certificate of Deposit?

Certificates of deposit are types of debt instruments offered by banks and credit unions. The buyer effectively lends money to the issuing entity in exchange for interest and an eventual return of principal. CDs appeal to conservative investors because they are not subject to price fluctuation. People who own CDs can add to them in certain circumstances.

Types

There are two main types of CDs: regular time deposits sold directly to financial institution customers and brokered CDs. Regular time deposits are non-transferable and have durations ranging from one day to five or more years. Brokered CDs are sold on the secondary investment market as securities and normally have durations of six months. Many brokered CDs are classified as jumbo CDs, meaning they are issued in increments of $1 million or more. Many institutional investors buy jumbo CDs as cash equivalents.

Time Frame

Normally, you can only add to a CD when it reaches maturity and enters its grace period. The grace period begins the day after the initial CD terms ends and usually lasts for between seven and 10 calendar days. Account holders can add or withdraw funds during the grace period, and if they do not close the account it automatically begins a new term. You cannot add funds to a brokered CD because they are non-renewable.

Exceptions

Some CD contracts allow customers to make additional deposits during the CD term. Typically, banks limit additions to one per CD term. Some banks issue IRA CDs that pay low variable interest rates but have open-ended terms. Customers can make additions to these open-ended IRA CDs at any time as long as they do not exceed maximum annual contributions. As of 2010, the Internal Revenue Service allows people under the age of 50 to invest up to $5,000 in IRAs per year, and people over 50 can invest up to $6,000.

Benefits

CDs that allow account holders to make additions are popular when interest rates are falling. Many people own multiple CDs across several financial institutions and move their CDs, when the CDs mature, to the institutions with the highest rates. If renewal rates are lower than expiring rates, people add money to CDs already in place that allow additions. Some CDs that allow additions also have a feature that enables customers to bump up the interest rate by 0.50 percent or more when they make additions.

Considerations

The Federal Deposit Insurance Corporation and National Credit Union Administration provide insurance coverage for deposit accounts at banks and credit unions, respectively. The coverage extends to a maximum of $250,000 per account holder, per financial institution. People who make additions to CDs may exceed these coverage limits. Some people with balances close to the maximum may exceed coverage when the CD begins to accrue interest. You cannot add a co-owner to a CD mid-term but you can add a pay-on-death beneficiary and gain an extra $250,000 of protection.

References

• National Credit Union Adminstration: About NCUA
• Securities and Exchange Commission: High-Yield CDs -- Protect Your Money by Checking the Fine Print
• Federal Deposit Insurance Corporation: Certificates of Deposit, Tips for Savers
• Federal Deposit Insurance Corp.: Deposit Insurance Frequently Asked Questions

Resources

• Bankrate: Certificate of Deposit