Buying a Certificate of Deposit from your local bank can be a smart move if you are looking for absolute safety. As long as the bank you use is a member of the FDIC, the money you invest in a CD is protected up to $250,000 per account. Unlike a savings account, a CD provides a steady and reliable rate of interest for the entire term. In some cases you can even add additional money to the CD, increasing the value of your investment even more.
Fixed Term
In many cases the CD you purchase is a fixed purchase, paying a set amount of interest on a specific amount of money. If your CD is fixed, you probably can't add additional money later on. If you have additional money to invest, wait until you can purchase a CD for a larger amount. If you do want to put your money to work right away, check with your bank's manager about the rules for adding money to an existing CD; if you have a flexible CD, chances are you can add additional money to your existing balance.
Fine Print
If you want to add additional money to an existing CD later on, start by reading the fine print on the agreement before you purchase the CD. The terms and conditions listed for the CD should state whether or not you can add money down the line. If you are unsure of the wording of any of the terms, contact your bank for further information.
New CD
You do not have to give up investing in CDs just because your current CD does not allow you to add additional funds. Instead, you can accumulate money and use that money to purchase additional CDs when you have enough to invest. Some banks even offer CDs with no minimum balance requirement, making it easy for you to put new money aside on an ongoing basis. An extra benefit of this strategy is that if interest rates tick up in the interim, you can get a better rate of return on the money you put into those new CDs.
CD Ladder
Using extra money to purchase new CDs, rather than adding to existing ones, is an excellent way to start building a CD ladder. When you build a ladder of CDs, you always have money coming due, and that allows you to either purchase a new CD at a higher interest rate or invest the money elsewhere for a higher return. For instance, you could save $100 a month and use that money to purchase a $600 CD twice a year. Buying CDs in varying maturities will ensure that one of those CDs is always coming due, thus establishing your ladder and helping you save even more.
