CD Rates Are Now Above 5%, but They Still Don't Come Close to 1980s' Returns (2024)

FAQs

Why were CD rates so high in the 80s? ›

By June 1980, CD rates dropped to 8.49%, but the Fed would soon raise rates again to try to curb inflation. CD rates reached a historical high of 18.65% in December 1980. As inflation continued and unemployment rose, the country faced a major recession from July 1981 to November 1982.

Right now, the only financial institution offering a 6% CD is Financial Partners Credit Union. To become a member of the credit union, you must live, work or go to school in Orange County, San Diego County, Riverside County, Los Angeles County, the city of South San Francisco or the city of Alameda.

You could find a 5% CD rate both in the mid-'90s and the mid-2000s, on either side of a short recession in 2001. Then, came the Great Recession from 2007 to 2009, which at the time was the biggest economic downturn since the Great Depression. Recovery in the 2010s didn't lead to the high CD rates of previous decades.

CD Rates From 1980 to 1989

In March 1980, six-month CD rates averaged 17.74% APY, and the rate rose to 17.98% in August 1981. At the same time, the average 3-month CD rate hit 18.65%.

The fed funds rate has never been as high as it was in the 1980s. The main reason is because the Fed wanted to combat inflation, which soared in 1980 to its highest level on record: 14.6 percent.

Peak. CD sales in the United States peaked by 2000. By the early 2000s, the CD player had largely replaced the audio cassette player as standard equipment in new automobiles, with 2010 being the final model year for any car in the United States to have a factory-equipped cassette player.

Can You Get a 7% CD Account? There was a lot of excitement in August 2023 about a few credit unions offering 7% APYs on certificates. But those rates were offered for a limited time only and are no longer available. However, the nation's best CD rates are still well above 5%, with some pushing toward 6%.

Unlike traditional or high-yield savings accounts, which have variable APYs, most CDs lock your money into a fixed interest rate the day you open the account. That's why if you suspect that interest rates will soon drop, it can be a good idea to put money in a CD to preserve the high APY you would earn.

Key takeaways. The national average rate for one-year CD rates will be at 1.15 percent APY by the end of 2024, McBride forecasts, while predicting top-yielding one-year CDs to pay a significantly higher rate of 4.25 percent APY at that time.

But all told, it's pretty fair to assume that there will still be opportunities to lock in a CD at close to 5% at the start of 2025. And there's a good chance you'll be able to open a CD at a rate of 4% or more for a good part of the year.

What happens to CD rates during a recession? ›

As rates drop, banks can also cut back on the interest they pay to savers. So you'll typically see lower rates for deposit accounts, including savings accounts, CD accounts and money market accounts, during a recession.

Key takeaways. Interest earned on CDs is considered taxable income by the IRS, regardless of whether the money is received in cash or reinvested. Interest earned on CDs with terms longer than one year must be reported and taxed every year, even if the CD cannot be cashed in until maturity.

Amid back-to-back recessions and high levels of inflation, CD rates surged to almost 20% in 1981. As the cost of goods and services increased, and the power of the dollar declined, people who saved were able to get double-digit returns on their CDs.

CD rates in the 1980s

That's when CD yields peaked. On average, three-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.

(CDs themselves sold for about $17 at the time, which is the same as about $40 in today's dollars.)

As a result, the price of tapes began to drop in order to compete with the sale of CDs, which typically retailed for around $15-20 when they were first released in the mid 80s.

On average, three-month CDs in early May 1981 paid about 18.3 percent APY, according to data from the St. Louis Federal Reserve.

Initially, sales were slow, but by 1985 sales started to grow rapidly. In 1988 CD sales surpassed vinyl LPs, and by 1989 they outsold prerecorded music cassette tapes for the first time ever — thus becoming the most popular audio format. CD sales continued to grow until they peaked in 2002.

High budget deficits, lower interest rates, the oil embargo, and the collapse of managed currency rates contributed to stagflation. Under Federal Reserve Board Chair Paul Volcker, the prime lending rate was raised to above 21% to reduce inflation.