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Historical CD Rates: How Things Have Changed Since the 1980s

Written by Lauren Perez | Published on 7/17/2019

In dynamic, ever-changing financial markets, interest rates constantly fluctuate. CD rates are no exception. Examining historical CD rates can give us insight into the direction rates may be heading in the future.

The current situation is characterized by declining CD yields, in response to the Federal Reserve’s latest policy pause. The average 6-month CD rate in July 2019 sits at 0.92% APY. What a difference the decades can make: 6-month CD rates had climbed to around 18% in the early 1980s.

Let’s take a deeper look at how historical CD rates have changed over recent decades and what drove these changes. Using available data from the Federal Deposit Insurance Corp. (FDIC), we have compiled a record of 6-month CD rates dating back to the 1980s. Additional term rate data starting in 2010 were added.

It’s important to note that we tracked the federal funds rate, using the effective rate until 2010. After the financial crisis, we began to look more closely at the federal funds target rate.

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CD rates in the 1980s

Beginning our look at historical CD interest rates, the early 1980s saw two recessions in the first two years. During the first recession — which lasted from January 1980 to July 1980 — the federal funds rate (shown in gray in the graphic that looks at historical CD rates by year) saw a drastic drop between April and May, falling 6.63 percentage points.

CD rates followed this drop pretty closely. Here, we can see the average 6-month CD rate plummeted from a high of 17.74% in March 1980 to 8.33% in June 1980.

The next recession, from July 1981 to November 1982, caused a similar drop in CD rates, as the 6-month rate dropped by 8.27 percentage points. CD rates never really recovered, remaining below 13% for the rest of the decade.

CD rates in the 1990s

Like in the 1980s, CD rates in the 1990s were almost immediately affected by a recession. From July 1990 to March 1991, the federal funds rate dropped just more than 2%, taking CD rates with it. CD rates continued to drop, reaching a low of 3.16% in 1993.

Then after a steep climb in 1994, the 6-month CD rate peaked at 6.78% in response to the steadily climbing federal funds rate. However, we can see that the 6-month CD rate corrected itself shortly after, when the federal funds rate didn’t match quite as high. After that, rates remained relatively steady, entering December 1999 at 6.07% APY.

CD rates in the 2000s

The aughts were bookended by two recessions, again leading to two huge drops in the federal funds rate and CD rates with both reaching record lows. The first recession, from March to November 2001, ended with the federal funds rate at 2.09%. The average 6-month CD rate fell just as far, landing at 2.03% APY, continuing to inch lower and lower for the next few years.

In 2004, CD rates suddenly began making a steep climb with the federal funds rate. Six-month CD rates peaked at 5.54% APY in July 2006, followed by another short period of relative stability.

Then, of course, the Great Recession hit at the end of 2007 and lasted until mid-2009. The federal funds rate plummeted to just about as low as you could go. However, CD rates didn’t quite follow through as closely as they had in the past. You can see that in mid-2008, CD rates spiked briefly while the federal funds went the opposite way entirely.

“The financial crisis forced banks to end securitization, which resulted in banks having to focus more on deposits,” noted Ken Tumin, founder of DepositAccounts. “That put upward pressure on deposit rates around this time.”

This upward pressure didn’t last long, however. The recession caught up to CD rates at the end of 2008, and the 6-month CD rates closed out the decade at a record low.

CD rates in the 2010s

Coming out of the Great Recession, we’d gotten pretty used to rock bottom CD rates for the past 10 years. Now looking at 6-month, 1-year and 5-year CD rates, we can see that rates across the board took a hit as the federal funds rate remained at its historic 0.25% low.

Six-month and 1-year average CD rates maintained a similarly smooth curve, dipping lowest in the middle of the decade. The 5-year CD rate progression was a bit more choppy, falling about 1.4 percentage points from the start of 2010 to mid-2013, when it hit its lowest point. Meanwhile, 6-month and 1-year rates dropped about 0.69 and 0.86 percentage points, respectively.

The quick succession of Fed rate hikes starting in 2015 breathed some life into CD rates, which started to gain some speed in mid-2018. However, rates quickly tapered off again, on average, with the Fed’s latest pause.

The federal funds rate and CD rates

As you’ve probably noticed, the historical CD rates shown above tend to follow the federal funds rate closely. This is the rate at which banks and credit unions exchange federal funds, held at Federal Reserve Banks. This is still true today. So when the federal funds rate is high, it allows financial institutions to increase their rates and pay out more money to their customers.

On the other hand, the opposite must also be true. When the federal funds rate is low, banks don’t have the room to offer their customers high-yield savings opportunities.

The federal funds rate typically falls when the economy starts slowing or when events occur that will likely weaken the economy. When slowdowns turn into a recession, the federal funds rate usually falls to low levels, like they did in 2001 and December 2008.

CD rates today

We’re finding ourselves in another low-rate environment. Despite the slight climb we saw in 2018 because of the Fed hikes, CD rates are back on the downward trend as the Fed takes a pause on monetary policy. We immediately saw banks downgrade their CD rate offerings in January when the Fed announced that it wouldn’t change the federal funds rate. We’ve seen a steady decline of rates in the months following as well.

Average CD rates across the board are pretty low. The average rate on a 1-year CD in July is 1.38% APY and the average rate in a 5-year CD is 2.19% APY. However, these averages are brought down significantly by traditional brick-and-mortar banks, which tend to offer the lowest rates around. The best CD rates are still earning well above these averages, making for a better savings opportunity if you’re still looking to stash your savings in a CD.

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Previous Comments
  |     |   Comment #1
I can walk down to the local CU and get 5yr/2.9% for 75K or 2.75% for any amount.
Rates follow the FED...something everyone should know by now. It's never been a mystery.
  |     |   Comment #7
The Fed follows rates that are set in the market. Rates do not follow the FED. The FED is simply the tail of the big dog. The big dog is now debt out the wazoo and the trillion dollar deficits worldwide.
  |     |   Comment #11
The Fed is supposed to manage the economy, the market does not, the market reflects the economy. The Fed will look at various things, yes, including market rates. But it sets its rates in order to manage, not to do whatever disaster the market is doing, and it might very well go differently than the market.

The market, of course, is influenced by the Fed rate. Its not a hard and fast lock step, it is simply an influence.

As this history shows, until recently, the Fed action to push rates low was only when the economy was sinking. At this point, the economy is stronger than ever, its maxed out, yet the Fed is about to lower rates anyway! All this prior history is being turned on its head, so you better watch out going forward, things might not be as they were, we are taking dangerous, possibly even reckless, action to insanely boost a maxed out economy. This, at best, it now experimenting to see if we an get more than everything, to see if we can get blood from a rock.

The economy has no need of a boost now, as it did for every other Fed rate cut or even Fed holding rates low. The Fed had always aimed at heading off inflation, after the huge lesson learned in the great inflation of the latter 1970s and early 1980s. It has sought to keep inflation at no more than a certain minimum, but since the Great Recession, the Fed seeks no LESS than a certain minimum.

The "experts" say they do not understand why inflation has not kicked in this time, and without it have left rates low. (Of course if they let we savers have a decent return, we might be able to spend more and give them the inflation boost they want!) And now they are about to insanely lower rates, when the economy is already pumping fully, meaning nothing to be gained, its already maxed out.
who are these people
  |     |   Comment #2
story begins with 6 month CD avg .92% for july 2019
When our sites 6 month drop down menu
show avg shall we say 2.35%.
  |     |   Comment #4
"Examining historical CD rates can give us insight into the direction rates may be heading in the future."

No it wont, reasons:
China economy in 1980 was not existent, Europe was made of separate countries, the euro did not existed, the US was fighting inflation, the national US debt was very small, the FED had price stability mandate that did not enforce and many many other variables contributed to those interest rates.
Today, it is totally different story, we are under central banks economies around the globe, the FED introduced inflation mandate on their own, the national debt is over $22 trillions and rising fast, we run and will run deficits for as far as I can see, the dollar is held artificially high by the FED's debt notes which in their books is entered as assets, imagine, debt is now asset according to the FED, the interest rates are decoupled from the economy and the FED is now a global political body.

Therefore, those charts are just that, historical recording of what has happened with the rates, the future can not be predicted from the charts, no matter how you twist or turn, we live in a totally different environment.
  |     |   Comment #6
Josef - good post and I could not agree more!
  |     |   Comment #8
One party's account receivable is another party's account payable. The trick here is that the two parties are hard to differentiate. The FED is not the GOV, and technically the GOV is in debt to the FED. Accounting-wise, from the FED side, asset is correct.
  |     |   Comment #9
Every economic environment has aspects that are different than the ones that preceded it. And there are always people who chirp “But this time it’s different!” the same way every generation has had easily influenced attention-mongers who claimed the end of the world is nigh. And they’re all still waiting for the apocalypse or died waiting.
  |     |   Comment #10
from the chart above i see the rate heading to -1%.
  |     |   Comment #12
If the charts are any good predictor of future indicator(s), nobody will lose any money on wall street and people will always lock the CDs at the top and we all will be living in permanent "shangrila" and making money left and right.
Charts from the past are just that, charts from the past and have no real connection to anything today.
  |     |   Comment #13
Looking at the charts for guidance is called ASTROLOGY.
  |     |   Comment #15
At my age, 72, this has ruined my retirement plans. Since the collapse of interest rates I figure I have lost over $1 million in interest. I saved for my entire life to accumulate, and now its value to create income has been decimated. Should I have been buying stocks like GE for dividends, which went from 55 to $8. I remember when Bernake said he would stop lowering rates when unemployment hit 5%. It is now 3.7% and they are going to lower rates. But there is no inflation. Have they gone shopping or gotten any dental work? Democrats-Republicans. None of them are looking out for us.
  |     |   Comment #16
You didn't lose over a million in interest, you just didn't make over a million in interest that you anticipated. As for the stock market, that's where you can certainly lose money. I agree, I haven't found a politician of either party that is really looking out for us middle class workers other than for our votes.
  |     |   Comment #17
Thanks for your reply . Good point about not making vs not losing. I experienced making and losing in the stock market and ultimately chose to handle most of my savings in a conservative manner, which CD's satisfied. When I got older, I decided I did not want to lose sleep on the stock market roller coaster. At this point, who knows how much longer I have, even if I am an athletic person. Who knows what can arise. And at this point, who can take long term risk. I still remember being advised to accumulate shares of GE and PGE utility which went bankrupt due to the CA fires .
  |     |   Comment #18
We walked very similar paths in life with the same financial strategies and goals. And even close in ages, one year difference. I can add Enron and Chesapeake Energy along side GE and PGE. I feel bad for all those employees who's retirement nest egg was based on their company's stock.
  |     |   Comment #19
I hope your health is good, and you live to triple digits ! Secondly, I hope you visit with a financial advisor that you feel is knowledgeable, has letters after his/her name, and that asks questions more than he/she talks. There are solutions that can provide you better returns, offer guarantees, and lifetime income.

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