Certificate of Deposit Rate History

CD rates tend to change depending on the state of the economy. Rates may go up during inflation, but they might drop when interest rates are low, and the economy is dealing with a recession.

Understanding the certificate of deposit rate history over the past few decades—and more specifically, how rates change during times of recession, steady growth, inflation, and booms—can help you manage your expectations when shopping for a CD. 

CD Rates During Recessions

During a recession, the economy slows down as unemployment rises and fewer people are able to buy products and services. To stimulate spending, borrowing, and investments, the Federal Reserve often lowers interest rates. 

“CD rates are very correlated with the interest rate that the Federal Reserve controls,” said Doug Carey, a Chartered Financial Analyst and the owner and founder of WealthTrace, a financial planning, and retirement planning software company. “Because of this, CD rates almost always decline during a recession.”

During the brief 1980 recession, for example, interest rates on three-month CDs dropped from 17.57% in March to 8.65% in July. Federal rates also decreased in the early 2000s, with CD rates falling to around 1% in 2003.

Certificate of deposit rates don’t always correlate precisely with the federal funds rate, though. During the Great Recession of 2007 to 2009, when interest rates plummeted, CD rates initially fell nearly three percentage points but then spiked above 4% in October 2008 before sinking below 1% in late 2008 and early 2009 and remained relatively low.

CD Rates During Steady Economic Growth

While the Federal Reserve often lowers interest rates during an economic slowdown, it does not need to do so during a time of economic growth. Instead, interest rates generally remain steady or even increase.

Steady economic expansion can be beneficial to growing your money in a CD, as you might see a higher return on your investment. During economic growth in the late 1970s, for instance, three-month CD rates rose from 4.83% in January 1977 to 13.43% in December 1979. That said, CD rates haven’t topped 5% since December 2007.

Carey noted that CD rates don’t always rise during times of economic growth. He pointed to the more than 10 years after the Great Recession as proof. 

“The Federal Reserve has kept short-term rates at historic lows even as the economy recovered [from the Great Recession],” Carey said.

CD Rates During Inflation

Although consumers enjoyed high CD rates during a period known as the “Great Inflation” (1965-1982), these returns weren’t worth as much as you might think due to inflation. The three-month CD rate in 1980 reached 18.65%, but the inflation rate hit 14.6%, year on year, in March and April.

“Inflation was deemed out of control at that point, and investors demanded a very large interest rate to compensate them,” Carey said.

CD Rates During Economic Booms

During a boom, the economy is experiencing rapid growth and a rise in demand for goods and services. Interest rates and CD rates tend to increase, as well. 

“Generally, we see higher CD rates during boom times than during times of slower growth,” Carey said. “In fact, the Federal Reserve often increases short-term interest rates during times of strong economic growth, which then propels CD rates higher.”

As the U.S. gross domestic product (GDP) rose between 2016 and 2018, for example, CD rates also increased from around 0.57% to 2.69%.

Of course, economic booms don’t last forever. When demand stabilizes and economic growth slows down, CD rates could go down, as well. 

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