Decades ago, average CD yields exceeded 10 percent APY. You won’t find a return anywhere close to that today. In fact, as of Dec. 2, 2020, the average 1-year CD had an annual percentage yield of just 0.24 percent, Bankrate survey data show.
“The Federal Reserve began cutting interest rates in the second half of 2019 to sustain an ongoing economic expansion,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “But when COVID-19 shook global economies, the Fed quickly brought benchmark rates to near zero levels to provide fuel for a recovery.”
It’s hard to believe that double-digit yields on certificates of deposit ever existed. But there was a time when CD savers enjoyed peak returns.
The downside to high CD rates is that they’re often an indication that inflation is high, too, so your savings aren’t as valuable as you think.
Here’s a look at the historical ups and downs of CD rates and what yields could look like in the future. Compare current CD rates now to grow your savings.
CD rates in the 1980s
The U.S. faced two recessions in the early 1980s. That’s when CD yields peaked. On average, 3-month CDs in early May 1981 paid about 18.3 percent APY, according to data from the St. Louis Federal Reserve.
The reason interest rates were so high in the 1980s was due to high inflation. With inflation, the cost of goods and services rises and your money doesn’t buy as much. And so, while savers enjoyed higher rates on their certificates of deposit, their spending power took a hit.
“Interest rates were significantly higher in the early 1980s as the Federal Reserve, led by Paul Volcker, used high rates to corral double-digit inflation,” McBride says.
CD rates in the 1990s
Following another short recession in the early 1990s, conditions improved and inflation fell. Overall, the decade was marked by a solid economy.
“CD yields dropped in the early 1990s following a recession and on the heels of the Fed’s efforts a decade earlier to break inflation,” McBride says. “Yields stabilized in the second half of the decade amid a sustained economic expansion.”
In June 1993, rates started to look normal again, with the average 12-month CD yield sinking to 3.1 percent APY, Bankrate survey data show.
Find out how today’s rates on CDs and savings accounts stack up.
CD rates in the 2000s
In early 2000, after the dot.com boom began to lose steam, the economy started to slow and the Fed lowered interest rates to stimulate the economy.
The average yield on 1-year CDs dipped below 2 percent APY in 2002, Bankrate data shows.
In 2009, after the financial crisis, the average 12-month CD paid less than 1 percent APY. Average rates on 5-year CDs were slightly higher (around 2.2 percent APY).
Other rates fell, too, as the central bank cut its key interest rate to the lowest point possible. As a result, rates declined overall.
“This decade was bookended by recessions, both of which brought about record-low interest rates for their time,” notes McBride. “In the middle was a housing boom and 17 interest rate hikes by the Fed that produced a camelback look to the trend in CD yields.”
CD rates from 2010 to 2020
The Federal Reserve’s efforts to stimulate the economy following the Great Recession left many banks flush with cash. Banks held on to their extra funds, so they didn’t have to boost rates on CDs to obtain money for lending.
CD yields reached historic lows. In June 2013, average yields on 1-year and 5-year CDs were 0.24 percent APY and 0.78 percent APY, respectively, according to Bankrate data.
“CD yields continued to fall in the years following the Great Recession as the Federal Reserve kept benchmark interest rates at near zero amid a sluggish economic recovery,” McBride says.
Savers benefited from rising rates as the Fed gradually increased its benchmark interest rate between December 2015 and 2018. In the decade since the Great Recession, rates have been headed back down.
“The Fed raised interest rates nine times between 2015 and 2018 before beginning a reversal of course in the second half of 2019 in an effort to sustain what by then was a record-long economic expansion,” McBride says.
CD investors are stuck with low yields for now, and it could be a while before rates rise again.