Certificate of deposit (CD) rates are largely determined by the Federal Reserve rate. Historically, the Fed raises the interest rate on borrowed money to reduce inflation. In turn, banks raise the interest rates paid to customers who open CD accounts.
Here’s an overview of how interest rates have fluctuated over the last five decades.
CD Rates in the 1980s
The 1980s began with the highest CD interest rates in 60 years. In March 1980, six-month CD rates averaged 17.74% APY, and the rate rose to 17.98% in August 1981. At the same time, the average 3-month CD rate hit 18.65%. But these historically high interest rates were tempered by high inflation rates—13.30% in 1979 and 12.40% in 1980.
The 1980s also began with the worst recession in the United States since the Great Depression. In late 1982, the unemployment rate reached 11%. And with lower employment rates comes reduced deposits. Average six-month CD rates remained high, at 12.57% in 1982, but dropped to 9.28% in 1983 as inflation remained low and recovery began.
Interest rates hit 12.08% in June 1984, but the remainder of the ’80s saw interest rates averaging between 6.5% and 10.8%.
CD Rates in the 1990s
At the beginning of 1990, CD interest rates were still above 8%. But that year later saw a recession, which cooled inflation and contributed to declining CD rates. The average interest rate for six-month CDs dropped to 3.76% in 1992 and 3.28% in 1993.
By 1994, rates rose and hovered between 5% and 5.7% and stayed there through the end of 1999.
CD Rates in the 2000s
With two recessions bookending the decade, 2000 to 2009 saw large fluctuations in CD rates. The rates in 2000 averaged 6.59%, but when the dot-com bubble burst that year, causing a stock market crash, the Fed lowered interest rates below 2.00% to counter the resulting recession of 2001. Rates on six-month CDs fell to 3.66% in 2001 and 1.81% in 2002 before bottoming out at 1.17% in 2003.
Rates rebounded in 2005, and from 2006 through 2007 consumers enjoyed rates around 5.20% on six-month CDs. But when the Great Recession began in 2008, rates fell to 3.14%. And in 2009, as foreclosure rates rose again, six-month CD rates fell to 0.87%—the lowest rate seen in over five decades.
CD Rates in the 2010s
In the wake of the housing market crash and record-high foreclosures that occurred during the Great Recession, the government helped stabilize banks by giving them large cash bailouts. These cash infusions made banks less
dependent on competitive interest rates to bring in deposits.
Throughout the 2010s, interest rates on six-month CDs remained low. Between 2010 and 2012, rates averaged 0.42% to 0.44%. In 2013, rates dropped below 0.15% for six-month CDs, while 12-month CDs remained under 1.00%.
Unlike previous decades when short-term CDs offered competitive rates and long-term CDs paid a lower rate of return, the 2010s saw the APY on CDs flatten across all terms.
While six-month CD rates remained the same throughout 2017, 12-month CD rates continued to fall and fluctuated between 0.20% and 0.30%. The years 2018 and 2019 saw a small uptick in rates as APYs on six-month and 12-month CDs rose to 0.40% and 0.60%, respectively. At the same time, 60-month CDs rose above 1.10% and paid up to 1.22% by the end of 2018. Overall, the decade saw historical lows in CD rates.
CD Rates Since 2020
In 2020, rates remained low. As recently as 2021, large national banks were still paying rates below 0.30% on CDs, while many online banks were offering competitive CD rates close to the national rate cap.
Beginning in April 2022, the effective federal funds rate rose dramatically from 0.33% in April to 3.08% in October. As lending rates increased in 2022, CD rates also rose. Banks were willing to incentivize savings to capitalize on the higher loan APRs. Paired with the conclusion of the Restoration Plan for reserve requirements, banks will continue to encourage savings deposits as they’re required to maintain a 2% cash reserve.
As the end of 2022 nears, CD rates are still on the rise, with the best CD rates inching toward 5%. Even large national banks are paying 3% on six-month to 13-month CDs. The best online banks are paying upward of 4% on 12-month CDs.
Why Are CD Rates Low?
Compared to the 1980s when interest rates ranged from 12% to 15%, today’s CD rates seem exceptionally low. However, the 12% to 13% inflation rates of 1979 and 1980 coupled with mortgage rates between 7.48% and 9.78% diminished the true value of those APYs.
The current inflation rate of 9.10% and mortgage rates above 6.50% put today’s CD rates in perspective. While price increases are higher than they were during the last few decades, inflation is still lower than the double digits of the ’80s. And while inflation remains lower, the government is unlikely to raise rates to those levels seen in 1981.
When Will CD Rates Go Up?
Rates are already on the rise. Less than six months ago, national banks were still offering CD rates as low as 1.00%. Today you can easily find a 12-month rate of 3.00% to 4.00% APY. The Federal Reserve anticipates ongoing interest rate increases will be necessary to return inflation to 2%. According to our CD rates forecast, you can expect small increases in CD rates as these federal rate increases occur.
While federal rate increases are likely, specific dates are unknown. You may want to consider starting a CD ladder to capitalize on the current interest rates and future rate increases.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
