Add-On Certificate of Deposit
You bought a CD. A certificate of deposit from a bank, arguably the safest bond investment you can make. If it has an add-on feature, you can, uh..."add-on" to your initial investment.
Why would you want to add-on to an existing investment, rather than buy a new CD? It's not like they're a rare stamp. Well, CDs carry a stated interest rate in the form of a discount to their eventual maturity and payoff of principal. So if interest rates suddenly drop to, say, 2.3% when they were 2.6% just last week, an investor would likely be wise to add-on to their initial investment and hope the world doesn't end before the CD matures.
Related or Semi-related Video
Finance: What is a Money Market Fund?80 Views
finance a la shmoop. what is a money market fund? isn't it a strange concept
to think about going to a market to buy money? [man walks through grocery store]
well yeah it's strange but the practice exists and it's a huge multi trillion
dollar market today. the key word here is money and not investment. why such a big
diff? well because the notion of investing implies duration. that is when
you invest in a nice fixer-upper home or a tractor distribution company or shares
in a fat dividend-paying bank you're investing for presumably a long time [people stand in line]
like years maybe decades maybe centuries if you can find the right miracle pill.
but here we're talking about money like the stuff you can buy candy with. so it's
short term not long and a money market fund basically comprises many series of
pretty safe bonds that are all coming due in the next 30 to 90 days. sometimes [pie chart]
longer than that sometimes shorter but generally in the very near future. so why
would you care about a money market fund? well because it pays you slightly more
interest on your money than say a bank checking account. and lots of people in
corporations need cash just sitting around to pay their bills, so there are
tons of money market funds out there available and that's the gist of a money
market fund. we're sure you'll have plenty of experience with them by the
time you hit your sixth hundredth birthday day [people cheer and hold birthday cake]
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