Are CD Interest Rates Going Up or Down?

A Certificate of Deposit (CD) is a type of savings account where money is held for a fixed period, known as the term, in exchange for a fixed interest rate. Funds are generally not accessible until the CD’s maturity date without incurring a penalty. CDs typically offer higher interest rates than regular savings accounts in return for this commitment. This article clarifies the prevailing trends in CD rates and the underlying factors that influence them.

Current Landscape of CD Interest Rates

CD interest rates have shifted notably over the past 12 to 24 months. Rates generally rose significantly through 2022 and 2023, reaching peak levels around November 2023. For instance, one-year CD rates, which averaged around 0.17% Annual Percentage Yield (APY) in June 2021, climbed to about 1.92% APY by September 2023. Similarly, five-year CD rates increased from 0.31% APY to 1.29% APY during the same period.

Following these peaks, CD rates began to dip slightly in anticipation of and after initial Federal Reserve rate adjustments in late 2024. This gradual decline has continued into 2025, with rates stabilizing somewhat, though experiencing minor downward adjustments. As of August 2025, competitive high-yield CD rates for short terms, such as three to six months, can be found in the mid-4% APY range, with some reaching as high as 4.94% APY for a six-month term. Longer-term CDs, specifically those spanning three to five years, typically offer rates in the high 3% to low 4% APY range.

The current environment sometimes shows shorter-term CD rates exceeding those of longer terms, a reversal of the typical yield curve where longer commitments usually yield higher returns. For example, a three-month CD might offer a higher APY than a five-year CD from the same institution. This inversion reflects market expectations of future economic conditions and potential rate adjustments.

Key Factors Driving CD Interest Rates

A primary influence on CD rates is the policy set by the Federal Reserve, specifically its target for the federal funds rate. This benchmark rate, at which banks lend their excess reserves to one another overnight, serves as a foundational rate that indirectly affects interest rates across the economy. When the Federal Reserve raises this rate, banks often increase CD rates to attract more deposits, which they can then lend out at higher rates. Conversely, a reduction in the federal funds rate typically leads banks to lower CD rates.

Inflation also plays a significant role in shaping CD rates. When inflation rises, the purchasing power of money decreases. To maintain the attractiveness of CDs and offer a real return to depositors, banks may adjust rates upward in response to higher inflation. If inflation stabilizes or declines, CD rates often follow suit.

The overall health and growth of the economy further impact CD rates. During periods of robust economic growth, there is often increased demand for loans from businesses and consumers. To fund this lending, banks need to attract more deposits, which can lead them to offer higher CD rates. During economic slowdowns or recessions, loan demand may diminish, reducing banks’ need for deposits and potentially leading to lower CD rates. Competition among financial institutions for deposits and the availability of alternative investment options also influence the rates offered.

How CD Features Affect Interest Rates

The CD term, or the length of time funds are committed, influences the interest rate it offers. While longer CD terms historically offered higher interest rates, current market conditions sometimes present an inverted yield curve. This means shorter-term CDs may offer rates comparable to or even higher than longer-term options.

Early withdrawal penalties are tied to the offered rate. Withdrawing money before maturity typically incurs a penalty, commonly calculated as a forfeiture of a certain number of months’ worth of interest. Longer CD terms often carry more substantial penalties; for example, a five-year CD could penalize 12 months of interest. Some “no-penalty” or “liquid” CDs allow withdrawals without penalty, but these generally offer lower interest rates for the added flexibility.

Callable CDs grant the issuing bank the right to redeem the CD before its stated maturity date. Callable CDs typically offer a higher interest rate than non-callable alternatives. This compensates the investor for the risk that the bank might call the CD early, often when market interest rates decline. If a callable CD is called, the investor receives their principal and accrued interest up to that point.

The deposit amount can also affect the interest rate, particularly with “jumbo” CDs. Jumbo CDs typically require a significantly larger minimum deposit, often $100,000 or more. In exchange for this larger commitment, jumbo CDs sometimes offer slightly higher interest rates compared to standard CDs. However, this is not universally true, and it is important to compare rates for all deposit tiers.

Navigating CD Offerings

Online banks and credit unions often provide some of the most competitive CD rates, frequently surpassing those found at traditional brick-and-mortar banks. Brokered CDs, offered through brokerage firms, also present another avenue for finding diverse options.

Comparing CD offerings goes beyond just the stated interest rate. It is important to look at the Annual Percentage Yield (APY), which accounts for the effect of compounding interest, providing a more accurate representation of the total return. While the interest rate (APR) is the nominal rate, the APY reflects the effective annual return. Always consider the minimum deposit requirements, as these can vary significantly. Understanding the specific early withdrawal penalties is also crucial, as these can impact your overall return if you need to access funds before maturity.

Ensuring the safety of your deposit is paramount. CDs purchased from federally insured banks are protected by the Federal Deposit Insurance Corporation (FDIC), while those from federally insured credit unions are protected by the National Credit Union Administration (NCUA). Both agencies insure deposits up to $250,000 per person, per financial institution, for each ownership category. This insurance protects your principal even if the financial institution were to fail. Always verify that the institution offering the CD is FDIC or NCUA insured.