A Simple Way to Save

Have you heard of an Add on CD?  I think this is a terrific innovation to the Certificate of Deposit.

As you know, a traditional CD operates as follows: you open a CD with a fixed amount (say $1,000) , for a fixed term (say 1 year) at either a fixed or variable rate.  You can never add money during the “life” of that CD.

An Add-on CD allows a saver to typically deposit less to open an account, has a fixed term, but allows a saver to add money to the CD, usually with a minimum amount per deposit.

As an example, I believe in November of 2007 I opened an Add on CD at my local credit union.  The term was 12 months.  The rate was 4.76% (yes, I would kill for such a savings rate today.  Do you hear me Fed Chair Bernanke?).  The minimum amount to open the Add on CD was $100.  (Another reason why I opened this CD was my credit union had an offer:  open an Add on CD and you will get $10. Now, $10 isn’t much.  But after some time I realized I hadn’t received my $10.  When I had some interaction with the credit union some time later, I mentioned the fact that I never received my $10 and the credit union subsequently deposited that amount into my account).  The Add on CD required a minimum of $25 to make additional deposits.  From November 2007 to November 2008 I saved over $10,000!! I was applying the principles of “the debt snowball” to my Add on CD – every extra penny was applied.  And I wasn’t going to withdraw any money early but I didn’t want to lose that great rate. 

Now, I need to start saving vigorously again so I checked my credit union’s website.  Yes, the Add on CD is still offered.  $100 minimum deposit and $25 minimum deposit for any add ons.  The rate is an anemic 0.30% (hello, Fed Chair Bernanke).  Although the rate is depressing low, I will open that Add on CD next week.

But did my credit union offer the best deal on an Add on CD?  USAA offered one in the past (I believe the minimum was $500).  I checked USAA’s website and could not find any reference to an Add on CD

I’m considering re-opening an account with another credit union.  I checked its website.  It offers an Add on Certificate.  The minimum amount to open is $500, the term is 15 months, the minimum deposit for add ons is $50, and I cannot recall the rate (but in today’s market, it’s depressing low).

I conclude my credit union offers the best deal on an Add on CD.  The low minimum requirements for opening and add ons are great incentives to save.

Check with your bank or credit union about an Add on CD.


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