When Were CD Rates the Highest? And What Caused Them?
Explore the history of peak CD rates, the economic forces that drove them, and what this means for your savings strategy today.
A Certificate of Deposit (CD) is a type of savings account that holds a fixed amount of money for a set period, known as the term. In exchange for keeping the funds untouched for this duration, the issuing financial institution pays a fixed interest rate. This financial product offers a predictable return on savings, making it a stable option for those who do not require immediate access to their deposited funds. CDs are generally considered safe savings vehicles, often federally insured up to specific limits.
Historical Peaks in CD Rates
Certificate of Deposit rates reached their highest historical levels during the early 1980s. Savers could find double-digit yields during this period, which are significantly higher than typical rates seen in recent decades. For instance, in December 1980, a three-month CD earned an average of 18.65% annual percentage yield (APY).
The peak extended into the early part of the decade, with the average three-month CD paying approximately 18.3% APY in May 1981. Six-month CD rates also saw remarkable highs, averaging 17.74% APY in March 1980 and climbing to 17.98% in August 1981.
Leading up to these peaks, CD rates in the 1970s also experienced substantial increases, oscillating between 5% and 11% APY. The average annual percentage yield on a one-year CD was often over 11% during the early 1980s.
Economic Conditions Behind High Rates
The exceptionally high Certificate of Deposit rates observed in the early 1980s were primarily a response to severe economic conditions, particularly rampant inflation. During 1979, 1980, and 1981, annual inflation rates in the United States consistently exceeded 10%, peaking at 14.8% in March 1980. This high inflation significantly eroded the purchasing power of money, necessitating higher interest rates to provide a real return for savers.
In response to this persistent inflation, the Federal Reserve implemented aggressive monetary policies, characterized by substantial increases in the federal funds rate. This period, often associated with Fed Chairman Paul Volcker, saw the federal funds rate pushed to unprecedented levels, reaching nearly 20% in 1981. The Fed’s objective was to curb inflation by making borrowing more expensive and slowing down economic activity.
The elevated federal funds rate directly influenced the rates banks offered on CDs. The early 1980s also saw two recessions and high unemployment, which contributed to a complex economic landscape. While these conditions led to high nominal CD rates, the real returns for savers, after accounting for inflation, were often more modest.
Key Influences on CD Rates Today
Several factors influence Certificate of Deposit rates in the current economy. A primary influence is the federal funds rate, which is the target interest rate set by the Federal Reserve. When the Federal Reserve raises or lowers this benchmark rate, CD rates typically move in the same direction. This is because the federal funds rate impacts the cost of borrowing for banks, which in turn affects the rates they can offer depositors.
Inflation expectations also play a role in determining CD rates. If future inflation is anticipated to be higher, banks may offer higher rates to compensate depositors for the expected erosion of purchasing power. Economic growth influences CD rates as well; a strong economy can lead to increased demand for loans, prompting banks to offer more competitive CD rates to attract deposits. Conversely, a weaker economy might lead to lower rates.
Competition among financial institutions is another factor. Online banks, for example, often offer higher CD rates compared to traditional brick-and-mortar banks, as they have lower overhead costs and aim to attract deposits nationally. The yield curve, which illustrates the relationship between short-term and long-term interest rates, also affects CD terms. Longer CD terms offer higher rates, but an inverted yield curve, where short-term rates are higher than long-term rates, can alter this dynamic.
CD Rates in a Changing Economic Climate
Current CD rates reflect economic shifts and monetary policy. As of August 2025, national average one-year CD yields are around 2.03% APY, while five-year CD yields average 1.71% APY. However, competitive high-yield CDs from various financial institutions can offer significantly higher rates, with some reaching over 4.5% APY for shorter terms and around 4% APY for longer terms.
These rates have seen increases in recent years, particularly since early 2022, driven by rising Treasury yields and the Federal Reserve’s actions to combat inflation. This has caused competitive CD rates to experience a slow decline from their recent peaks in late 2023.
For savers, the current environment presents opportunities to lock in competitive yields, especially for shorter-term CDs, which have sometimes offered higher rates than longer terms due to an inverted yield curve. While current rates are not at the double-digit highs of the early 1980s, they are considerably higher than the near-zero rates observed for extended periods after the 2008 financial crisis and during the COVID-19 pandemic. Evaluating CD offerings today involves considering personal liquidity needs and the outlook for future interest rate movements.