A certificate of deposit (CD) can be a good investment option for locking in an annual percentage yield (APY) on a deposit for several months or years. But before committing your money, you may want to consider how historical CD rates have changed over time, so you can make informed personal finance decisions and take advantage of higher rates.
CD interest rates have fluctuated over the past four decades, peaking in the 1980s and then falling to very low levels for much of the 2010s and early 2020s. Rates have recently become more attractive again as the Federal Reserve took steps to help tame high inflation.
Below, we at the MarketWatch Guides team will take a look at how CD rates have changed from the 1980s to the 2020s. We’ll also explore the key factors that influence CD rates and discuss what might happen in 2024.
Key Takeaways
- The average three-month CD rate is currently close to 5.5%. This is higher than much of the past decade, but much lower than the double-digit rates of the 1980s.
- CD rates fluctuate based on factors such as economic and market conditions, Federal Reserve actions and individual bank priorities.
- Looking at historical CD rates can give investors insight into where savings rates might head next.
- Entering 2024, CD rates seem to be stable as banks wait to see if the Fed will institute interest rate cuts as inflation eases.
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How CD Rates Have Fluctuated from 1980 to 2023
The Federal Reserve Economic Data website, run by the Federal Reserve Bank of St. Louis, presents monthly average three-month CD rates from 1964 to the present day. The data comes from the Organization for Economic Co-operation and Development, and international policy center, and can show investors how CD rates typically move in different economic situations. This makes it useful for knowing what to expect and whether it’s a good time to open a CD.
As the following chart displays, three-month CD rates over the past four decades were the highest in the 1980s, when they reached double-digit levels. While the average rate now sits closer to 5.5%, it’s still significantly better than the low rates seen after the Great Recession in 2007 and COVID-19 pandemic in 2020. We’ll detail trends for each decade below.
>> Related: Learn more about the best 3-month cd rates
1980s
When the 1980s began, the average three-month CD APY was 13.39%, more than double the CD rates today. But since the country had record-high inflation levels, too – peaking at 13.5% in 1980 – the high return meant savers were still just treading water. Inflation had caused the Federal Reserve to increase interest rates several times to tighten the money supply.
A short recession occurred during the first half of 1980, and the Fed responded with some interest rate decreases to stimulate the economy. By June 1980, CD rates dropped to 8.49%, but the Fed would soon raise rates again to try to curb inflation. CD rates reached a historical high of 18.65% in December 1980.
As inflation continued and unemployment rose, the country faced a major recession from July 1981 to November 1982. Three-month CD rates fell to 12.48% by November 1981, but bounced back to 15% by February 1982. While occasionally hitting double digits through 1984, rates for the rest of the 1980s mainly ranged from 6% to 9% as the economy recovered. The decade closed with an 8.32% average CD rate.
1990s
The 1990s began with an average three-month CD APY of 8.16%, compared to a 5.4% average inflation rate. However, factors such as the Persian Gulf War and credit difficulties led to a mild recession from July 1990 through March 1991. The Federal Reserve responded with several interest rate cuts.
Average three-month CD rates fell to 5.91% by May 1991, 4% by April 1992 and 3.09% by April 1993. But after the Fed increased rates again, CD rates peaked at 6.29% in December 1994. They then mostly ranged between around 5% to 6% for the rest of the decade.
During that period of time, the country enjoyed a strong economy with generally favorable inflation and unemployment levels. In December 1999, the average three-month CD APY was 6.05%, which is slightly higher than today’s rates.
2000s
The average three-month CD rate in January 2000 was 5.95% and stayed above 6% for most of the year. Since inflation was only 3.4% that year, this rate was attractive for savers. However, the country’s strong economy took a hit when the 1990s dot-com bubble burst. The stock market crash led to a recession for most of 2001.
As the Federal Reserve responded with several rate cuts, CD rates fell to 1.83% by December 2001 and reached 1.04% by June 2003. Once the Fed started raising rates again, CD rates crossed 2% in October 2004, reached 5.46% by July 2006 and stayed above 5% through most of 2007.
Between late 2007 and mid-2009, the Great Recession – which led to foreclosures, bank failures and high unemployment – led to the Fed lowering rates again. CD rates dropped to 1.77% by the end of 2008, and they would stay below 1% for most of 2009. The decade closed with a 0.22% average CD APY, compared to a -0.4% annual inflation rate – which is actually deflation.
2010s
The 2010s began with an average three-month CD rate of only 0.20%, which didn’t offer savers much of an incentive. As unemployment was still elevated and the Fed kept rates close to zero, CD yields stayed below 0.5% for the first half of the decade. This made CDs less appealing since inflation was usually multiple times this rate.
The Fed began increasing rates in 2015, and CD rates would reach 0.54% by the year’s end. They crossed the 1% mark in April 2017 and eventually peaked at 2.69% in December 2018. The Fed started dropping rates again in 2019, and the average three-month CD APY at the end of the decade was 1.76%.
2020 to Present Day
The average three-month CD APY in January 2020 was 1.65%. But when the COVID-19 pandemic started, the global economy became unstable with many businesses losing revenue and workers becoming unemployed. This led to a brief U.S. recession, and the Fed responded by cutting interest rates to nearly zero in March 2020. Average three-month CD rates reached a low of 0.09% in June 2021.
While CD rates stayed under 1% through early 2022, inflation began to rise and reached an average rate of 8% that year. The Fed responded in March 2022 with the first of 11 rate hikes, which eventually gave savers with interest-bearing deposit accounts more of an incentive to save. The average three-month CD rate reached 4.51% by the end of 2022 and continued to climb past 5%.
Monitoring the economy’s improvement, the Federal Reserve last hiked the federal funds rate in July 2023. Three-month CD rates became more stable and were 5.41% in November 2023, beating the estimated 2023 average inflation rate of 3.5%.
| Year | 3-Month CD Rate | Year | 3-Month CD Rate | Year | 3-Month CD Rate |
|---|---|---|---|---|---|
| 1980 | 13.07% | 1995 | 5.92% | 2010 | 0.31% |
| 1981 | 15.91% | 1996 | 5.39% | 2011 | 0.30% |
| 1982 | 12.27% | 1997 | 5.62% | 2012 | 0.28% |
| 1983 | 9.07% | 1998 | 5.47% | 2013 | 0.17% |
| 1984 | 10.37% | 1999 | 5.33% | 2014 | 0.12% |
| 1985 | 8.05% | 2000 | 6.46% | 2015 | 0.23% |
| 1986 | 6.52% | 2001 | 3.69% | 2016 | 0.64% |
| 1987 | 6.86% | 2002 | 1.73% | 2017 | 1.15% |
| 1988 | 7.73% | 2003 | 1.15% | 2018 | 2.19% |
| 1989 | 9.09% | 2004 | 1.56% | 2019 | 2.21% |
| 1990 | 8.15% | 2005 | 3.51% | 2020 | 0.60% |
| 1991 | 5.84% | 2006 | 5.15% | 2021 | 0.11% |
| 1992 | 3.68% | 2007 | 5.27% | 2022 | 2.23% |
| 1993 | 3.17% | 2008 | 2.97% | 2023 | 5.16% |
| 1994 | 4.63% | 2009 | 0.56% |
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Factors Influencing CD Rates Over Time
Just like rates on money market accounts and high-yield savings accounts, CD rates change from time to time depending on what’s happening in the markets and economy. Although the Federal Reserve makes some decisions that play an important role, the financial institutions offering CDs choose their own rates. Plus, certain CD features affect rates.
Economic and Market Conditions
How well the economy is doing influences the rates you’ll find on loans and savings products. For example, when the COVID-19 pandemic severely hurt the economy and increased unemployment, CD interest rates dropped while lending rates became cheaper to help stimulate the economy. A strong economy typically features better CD rates alongside costlier loan and credit card rates.
Inflation is also something that plays a role in CD rates. When it gets high, your money doesn’t buy you as much, and you may have less cash to put into a CD. The Federal Reserve also typically increases rates to fight inflation, pushing CD rates to rise and making saving your money more appealing. But when inflation comes down, CD rates tend to eventually fall.
Government Policies
As the country’s central bank, the Federal Reserve has monetary policy tools to help shape the economy. For example, it looks at current economic and market conditions and works to help stabilize inflation and keep unemployment levels low. It also wants to keep long-term interest rates from getting too high or low.
When the Fed holds meetings, it might consider changing the federal funds rate, which is the overnight loan interest rate that financial institutions pay each other. It can raise this benchmark to tighten the money supply and tame inflation. During downturns, the Fed usually will lower the rate to encourage borrowing and boost the economy.
As the decade trends show, CD rates have usually flowed with these changes, with short-term CD rates typically being in the closest alignment. It’s important to note, though, that the Federal Reserve doesn’t set any CD rates. That decision is left up to banks and credit unions.
Financial Institution Priorities
Financial institutions can look at the federal funds rate and decide whether to cut or raise their CD rates. They may raise them to gain new customers, increase deposits or compete with other institutions. When they don’t have a high need for deposits or they need to cut expenses, financial institutions may lower their CD rates.
The financial institution type and its stability play a role, too. Because of lower expenses, online banks can often afford to pay more competitive CD rates than banks with local branches. Plus, financially strong institutions might offer their customers better CD rates.
CD Characteristics
When interest rates trend upwards, longer-term CDs are riskier for savers because of their fixed rates. Therefore, financial institutions have usually offered higher interest rates on long-term versus short-term CDs. Right now, however, short-term CDs can have the best rates, especially if you check with online-only banks. That’s because financial institutions are expecting lower rates in the future. Plus, some traditional banks offer current customers promotional rates on certain short-term CDs.
CDs come in multiple varieties, including no-penalty, rate-bump and high-yield options. While high-yield CDs usually offer the best rates, they don’t allow for penalty-free early withdrawals or rate increases during the term. Banks may offer lower rates on no-penalty and rate-bump options in exchange for more flexibility.
Additionally, the amount you put into the CD can affect the rate you get. For example, you might get a bank’s top rate with a minimum deposit of $100,000.
>> Related: Learn more about the types of cds
Will CD Rates Go Down in 2024?
Based on historical patterns, 2024 CD rates should heavily depend on economic conditions and Federal Reserve decisions. The Federal Reserve’s March 2024 statement discussed closely monitoring inflation, which has improved, and unemployment levels. Since the Fed left rates unchanged, CDs should continue offering stable yields for now.
Last year, Mary Daly, president of the San Francisco Fed, suggested that 2024 might involve a few interest rate cuts, according to the Wall Street Journal. This would happen if the Fed continued to see progress toward a 2% inflation rate.
However, these have not come as quickly as initially predicted. In an April speech at Stanford University, Federal Reserve chairman Jerome Powell said that recent positive economic news lessens the urgency around lowering interest rates. However, he said the Fed is likely to lower target rates at some point this year.
When the Fed starts lowering rates, CD rates will likely follow. According to federal funds rate projections from the FRED database, this trend could continue for at least the next few years. Investing in a CD now can give you an advantage since you’ll lock in the current rates.
FAQ: CD Rates History
The FRED database shows that December 1980 had the highest average three-month CD rate of 18.65%. As a time of high inflation, the early 1980s featured historically high rates that were often in the double digits.
Since inflation has stabilized, the Federal Reserve has suggested possible federal funds rate decreases, which would likely cause CD rates to fall rather than go up in 2024. Until that happens, CD rates should remain stable as 2024 begins.
During a recession, the Federal Reserve often lowers the federal funds rate to help give the economy a boost, and CD rates typically decline accordingly. Lower interest rates during a recession make saving less appealing and borrowing more affordable.
*Data accurate at time of publication
**Rates and promotions accurate as of 4/14/2024
If you have feedback or questions about this article, please email the MarketWatch Guides team at [email protected].
