Certificates of deposit offer a way to grow your money with fixed terms and set interest rates. For years, CDs have been a go-to for individuals seeking low-risk investment options. Here’s a look at historical CD rates from 1965 to 2023 to see how they’ve changed and whether now is a good time to invest in a CD.
Decade-by-Decade Analysis of CD Rates
Here’s a brief overlook of how CD rates have fluctuated over the years, according to the St Louis Fed’s 3-month historical CD rates chart. While rates were high in the 1980s, they have gradually fallen since then, staying close to zero since the 2008 recession. 2023 has seen an uptick in CD rates, with May 2023 being the highest month for rates since 2007.
CD interest rates in 1965 were around 4%, gradually climbing as the decade progressed. By 1969, they peaked at nearly 8.8%.
The Federal Reserve increased interest rates to combat inflation, causing CD rates to surge — they started at around 4% in 1971 and reached nearly 13.5% by the end of 1979.
In December 1980, CDs averaged a rate of 18.65%, the highest in history. They then trended downwards, ending the decade at 8.32%.
In 1990, CDs had interest rates around 8%, and after a short period of turbulence remained relatively flat, ending the decade at 6.05%.
The 2000s opened with the dot-com bubble burst and ended with the 2008 financial crisis. Interest rates in 2000 for CDs were near 6%, but by the end of 2009, they had fallen to 0.22%.
The 2010s was a period of slow yet steady economic recovery from the financial crisis. During most of the 2010s, rates were around 0.2% to 0.5%. In 2016, they began to rise, reaching 2.69% in Dec 2018 before plummeting to close to zero again in early 2020.
The early 2020s were shaped by the COVID-19 pandemic, which significantly affected the global economy. In 2020 and 2021, CD interest rates remained low, between 0.1% and 0.2%. Rates finally began to rise in January 2022, reaching 5.15% in May 2023.
How Do Certificates of Deposit Work?
CDs are a type of savings account offered by banks and credit unions. Unlike regular savings accounts, CDs have a fixed term and, typically, a fixed interest rate. This means that when you open a CD, you agree to leave your money in the account for a set period of time, ranging from a few months to several years. In return, the bank or credit union pays you interest.
The interest rate on a CD is usually higher than that of a regular savings account. Rates are often fixed but can vary depending on the institution and the type of CD. Some CDs, known as variable or adjustable-rate CDs, have interest rates that can change over the term.
CDs from reliable financial institutions are considered safe investments because they are often insured by the Federal Deposit Insurance Corporation up to $250,000 per depositor, for each account ownership category. This means that even if the bank or credit union fails, your investment is protected up to the insured limit.
Good To Know
CDs are considered to be one of the safest forms of investment and are particularly appealing to individuals looking for a low-risk option. Since CD terms can vary, it’s important to carefully consider the length of the CD term. Remember that accessing your money before the maturity date usually incurs a penalty.
Why Do CD Interest Rates Fluctuate?
Interest rates on CDs are determined by banks and credit unions and are influenced by economic conditions and Federal Reserve policies. CD interest rates are loosely based on the federal funds rate, though banks and credit unions may adjust them on a case-by-case basis to attract customers.
The Fed might raise its target interest rate to curb inflation during times of economic growth. This can lead to higher CD interest rates. On the other hand, in an attempt to stimulate the economy during a recession, the Fed might lower its target interest rate. This action often results in lower CD interest rates.
Competition among banks and other financial institutions can also affect CD rates. Banks may adjust their rates in response to what competitors are offering in order to attract deposits. In a highly competitive market, banks might offer higher CD rates to stand out among the competition.
Looking at historical CD rates, it is clear to see that they are on the rise. This means they may be a great choice for investors currently. Rates may differ across institutions, so it’s worth finding the best deals and opportunities. Make sure to shop around thoroughly and do your research before you open a CD account since banks and credit unions might not allow you to cash out prematurely without incurring penalties.
FAQHere are the answers to some of the most frequently asked questions regarding CD rates.
- What was the highest CD rate in history?
- The all-time high for CD interest rates was in December 1980, when CD rates reached an average of 18.65%.
- When was the last time CD rates were 5%?
- The last time that CD rates were at or above 5% was before the 2008 recession in October 2007. The average rate at the time was 5.08%. Then, during the recession, rates began to fall, reaching 0.2% in January 2010.
- What were the interest rates on CDs in the 70s?
- Average CD rates in the seventies fluctuated between a low of 3.61% in February 1972 and a high of 13.43% in December 1979.
- How high will CD rates go up in 2023?
- Predicting CD rates accurately can be difficult, since banks and credit unions decide rates based on a number of factors including the Federal Reserve interest rate and the state of the economy. However, for now, things appear to be looking positive for CDs, with current rates being the highest they've been since 2007.
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- Annuity.org. 2023. "Will CD Rates Go Up?"
- Federal Reserve Economic Data. " 3-Month or 90-day Rates and Yields: Certificates of Deposit for the United States."
- Investor.gov. "Certificates of Deposit (CDs)."