Deposit account rates have been decreasing recently, but investors can still secure competitive returns through certificates of deposit. Some of the best CDs currently offer annual percentage yields above 4%.
Short-term CDs, with terms from six to twelve months, generally provide rates between 4% and 4.5% APY. Marcus by Goldman Sachs offers a 1-year CD at 4% APY, which is among the highest available today.
In the early 2000s, CD rates were relatively higher before declining as the economy slowed and the Federal Reserve cut its target rate. Following the 2008 financial crisis, average one-year CDs paid about 1% APY, with five-year CDs below 2% APY.
Rates continued to fall in the 2010s after the Great Recession, with the Fed keeping benchmark interest rates near zero. By 2013, average rates for 6-month CDs dropped to approximately 0.1% APY, while 5-year CDs averaged 0.8% APY.
Between 2015 and 2018, the Fed gradually increased rates, leading to a slight improvement in CD rates as the economy expanded. However, the COVID-19 pandemic in early 2020 prompted emergency rate cuts, pushing CD rates to new record lows.
After the pandemic, inflation surged, prompting the Fed to raise rates eleven times from March 2022 to July 2023. This resulted in higher APYs on savings products, including CDs.
In September 2024, the Fed began cutting the federal funds rate after determining inflation was under control. It announced three additional rate cuts in 2025. CD rates are now steadily declining from their peak but remain high by historical standards.
Traditionally, longer-term CDs offered higher interest rates than shorter-term ones, as banks compensated for the risk of locking in funds. Today, the highest average CD rate is for a 12-month term, indicating a flattening or inversion of the yield curve, which can occur during uncertain economic times or when future rate declines are expected.
When selecting a CD, consider factors beyond the APY. Determine how long you are willing to lock away funds, as early withdrawals may incur penalties. Research rates from various financial institutions, including online banks, local banks, and credit unions, ensuring they are FDIC-insured or NCUA-insured. Review account terms such as maturity dates, withdrawal penalties, and minimum deposit requirements. Also, consider that CDs might not always keep pace with inflation, especially over longer terms.