Certificates of Deposit (CDs) offer varying rates influenced by economic conditions. In the years 2022 and 2023, CD returns reached unprecedented highs due to the Federal Reserve’s aggressive stance against soaring inflation. This period saw nationwide CD rates exceeding 6%, a level not witnessed in over 16 years. However, looking back, CD rates have fluctuated significantly over time, from near-zero levels to double-digit returns during different economic climates.
A History of CD Interest Rates
CD rates, tied to inflation and Federal Reserve policies, respond to economic shifts. The Fed’s regular adjustments to the federal funds rate impact the rates offered by financial institutions, including CDs. When inflation is high, the Fed raises rates, leading banks to increase their CD rates correspondingly. Conversely, rate reductions by the Fed result in decreased CD rates.
Historical data reveals the cyclical nature of CD rates, mirroring inflationary periods. These fluctuations have marked the journey of CD rates over decades filled with peaks and troughs.
CD Rates in the 1970s and 80s Reached into Double Digits
Data since the mid-1960s shows that CD yields peaked well into double digits during the 1970s and 1980s, driven by high inflation. The early 1980s, in particular, showcased interest rates hovering near or above 10%, with rates like 18.65% reported in December 1980, significantly higher than recent peaks.
The extraordinary CD rates in the early 1980s were a response to unprecedented inflation levels, with inflation exceeding 10% annually and peaking at 14.8% in March 1980. This period saw the Federal Reserve aggressively raising rates to contain rising prices.
During the inflation-ridden 1970s and 1980s, the federal funds rate hit peaks above 10%, nearly touching 20% in 1981, highlighting the intense monetary policy actions taken during that time.
The 1990s and Early 2000s See CD Rates Transition to More Moderate Levels
By late 1989, the Fed had successfully curbed inflation through substantial rate hikes, ushering in a period of relative stability in the 1990s. The first half of the 1990s marked a transition to more moderate CD rates, with a notable rate hike in 2000 pushing the 3-month CD yield to 6.73%, setting the stage for a climb to about 5.5% in the mid-2000s.
Post the dot-com bust between 2001 and 2004, CD rates recovered, peaking around 5.5% in the summers of 2006 and 2007, just before economic turmoil ensued in late 2007.
The Great Recession Sinks CD Rates to Anemic Levels
The onset of the Great Recession in December 2007 led to a drastic cut in the federal funds rate to near 0% by December 2008. Consequently, CD rates plummeted, remaining at historic lows over the subsequent years, with the Fed taking seven years to begin raising rates above the 0% mark.
This extended period of low rates severely impacted savers, offering minimal returns on CDs for almost a decade.
Subsequent rate increases in 2015 and 2018 provided marginal relief to CD rates, reaching a peak of 2.69% for 3-month CDs in December 2018.
The COVID-19 pandemic in early 2020 prompted another economic downturn, forcing the Federal Reserve to slash rates back to 0%, resulting in rock-bottom CD rates between 2020 and 2022, hovering below 0.20%.
In response to surging inflation following the pandemic, the Fed aggressively raised rates in 2022 and 2023, propelling CD rates to levels not seen for over a decade.
The continued series of rate hikes in 2023 saw CD rates peak at 5.49%, resembling the highs of 2007.
Contrastingly, back in December 2021, CD rates were significantly lower, with the best rates ranging from 0.80% to 1.30%.
The recent market dynamics have seen a shift in pay-offs between short-term and long-term CDs, influenced by evolving rate trends and economic conditions.
Where Are Future CD Rates Headed?
Predicting the direction of future CD rates remains speculative, as economic events can swiftly alter the trajectory of Federal Reserve policies and consequently CD rates. Monitoring current rates and making informed choices based on personal financial goals is advisable.
Frequently Asked Questions
What Are Today’s Highest CD Rates?
Visit our daily rankings of the best CD rates to find the top-paying CDs from over 200 federally insured banks and credit unions.
What Was the Highest CD Rate in History?
The highest recorded 3-month CD rate was 18.65% in December 1980, with more recent peaks around 8.42% since 1990.
When Were CD Rates the Highest?
Double-digit CD rates were prevalent in the 1980s during periods of high inflation. Recent peaks in 2022-2023 surpassed 6%, reminiscent of highs from 2006-2007.
What If I’m Worried About Making a CD Commitment?
If committing to a CD is concerning, consider high-yield savings accounts or shorter CD terms for flexibility in fund access.
What Happens to CD Rates in a Recession?
Rates typically decline in a recession following previous rate hikes by the Fed to combat inflation, impacting CD returns indirectly through changes in the federal funds rate.
How We Find the Best Savings and CD Rates
Investopedia tracks rates of over 200 banks and credit unions nationwide daily, ranking the top-paying accounts that meet specific criteria for inclusion.
Institutions must be federally insured, with minimum initial deposits not exceeding $25,000 to qualify, ensuring listings feature reputable and accessible options.