CD Rates Are Now Above 5%, but They Still Don't Come Close to 1980s' Returns
KEY POINTS
- CD rates soared in the 1980s as inflation rose.
- Current CD rates are still impressive and a worthwhile investment for many.
- Lock in a CD rate now before the Federal Reserve decreases interest rates.
Certificate of deposit (CD) rates have ticked higher over the past two years as the Federal Reserve has raised interest rates to combat inflation.
While inflation has damaged many Americans' finances, CDs paying an annual percentage yield (APY) of 5.00% have been excellent for many people's bottom lines. The high rates have helped some people, at least partly, outpace inflation's impact on their money.
But even these high APYs don't compare with CD rates of the early 1980s. Here's how high they reached more than 40 years ago and why CDs can still be a good option for some of your cash.
3-month CD rates were over 18% in 1981
In August 1981, 3-month CDs reached an average rate of 18.6%, and 6-month CDs averaged 17.9%! To put that in perspective, the S&P 500 has a historical annual rate of return of just over 10%.
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American Express® High Yield Savings
APY
4.25%
Rate info
4.25% annual percentage yield as of July 24, 2024
Min. to earn
$1
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APY
4.25%
Rate info
4.25% annual percentage yield as of July 24, 2024
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Min. to earn
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Western Alliance Bank High-Yield Savings Premier
APY
5.31%
Rate info
5.31% annual percentage yield (APY) is accurate as of 7/11/2024 and subject to change at the Bank’s discretion. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.
Min. to earn
$500 to open, $0.01 for max APY
Open Account for Western Alliance Bank High-Yield Savings Premier
On Western Alliance Bank's Secure Website. |
APY
5.31%
Rate info
5.31% annual percentage yield (APY) is accurate as of 7/11/2024 and subject to change at the Bank’s discretion. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.
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Min. to earn
$500 to open, $0.01 for max APY
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UFB Secure Savings Account
APY
5.25%
Rate info
To ensure you keep getting the highest rate at UFB, you'll need to keep an eye on their rates. Occasionally, the bank launches new accounts with higher rates. Existing accounts need to contact the bank to request being moved to one of these new accounts.
Min. to earn
$0
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On UFB's Secure Website. |
APY
5.25%
Rate info
To ensure you keep getting the highest rate at UFB, you'll need to keep an eye on their rates. Occasionally, the bank launches new accounts with higher rates. Existing accounts need to contact the bank to request being moved to one of these new accounts.
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Min. to earn
$0
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But those high rates resulted from difficult economic conditions, in which inflation ran rampant at 12.4% in 1980. In contrast, the latest inflation report for May 2024 showed inflation slowing to just 3.3%.
The current inflation fight isn't over just yet, which means that CD rates could remain elevated for a bit longer. But you might not want to wait long to open one. Some experts think the Federal Reserve could cut interest rates this year, negatively impacting CD rates.
Three reasons to consider opening a CD
CDs aren't for everyone, but they can be a great place to protect cash from inflation's eroding effects. If you need a little convincing, here are three reasons why CDs are a good option.
1. A nearly-guaranteed interest rate
One significant benefit of CDs is that their APYs are nearly guaranteed. As long as you leave your money in the CD for the entire term, you can earn the quoted interest rate.
Many banks often charge a penalty of 90 days of simple interest for early withdrawals from CDs with term lengths of two years or less and 180 days for CDs with longer terms. Some no-penalty CDs are also available, but may pay a lower interest rate.
2. They're a safe place for your money
CDs are FDIC insured, just like savings accounts, (as long as you choose to bank with an FDIC-insured institution), which means you're guaranteed to get your money back in case of a bank failure. FDIC-insured accounts are good for up to $250,000 per account holder, per bank.
3. Low minimum deposit amounts
Many CDs have deposit amounts as low as $0 or $1, making it easy for nearly anyone to open a CD.
Just keep in mind that some CDs pay higher rates for larger amounts. So be sure to check the interest rate and the deposit amount required before you sign up.
Now could be an excellent time to move some cash into a CD, while rates are still high. If the Fed cuts rates later this year, CD returns will likely drop. This means locking in a high rate right now will help you avoid settling for a lower CD rate later.
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Our Research Expert
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