How Far Could CD Rates Drop in 2025?
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CD rates are already sliding from their 2023-2024 highs, and analysts warn they could fall much further if the Federal Reserve continues cutting interest rates this year.
After peaking in the 4%-5% range in recent months, yields on 1-year CDs could slip into the mid-3% range by 2026, with the possibility of dipping closer to 2% if the Fed follows through on multiple rate cuts.
Fed moves are driving the change
The Fed began trimming its benchmark rate this fall to counter slowing growth. That's the same force that pushed CD yields higher during 2022 and 2023, only now in reverse. When borrowing costs decline, banks don't need to offer as much interest to attract deposits, and CD rates adjust accordingly.
What history tells us
The last major cutting cycle offers a sharp reminder. In 2019, average 1-year CDs hovered around 2.5%. By mid-2020, after emergency Fed actions during the pandemic, they had plunged to near 0.2%. While a return to those depths isn't expected unless the economy falters badly, the direction is clear: Rates fall faster than most savers realize once cuts begin.
For now, some banks are still advertising the best 12-month CDs around 4.00% APY, but those offers may disappear quickly if the Fed reduces rates again later this year. By late 2025, many experts expect averages in the 3% range. Longer-term CDs could fall even more as markets price in future Fed moves.
Alternatives to consider
CDs still work for locking in a guaranteed yield, but savers should weigh flexibility. High-yield savings accounts (HYSAs) currently pay rates similar to short-term CDs while allowing access to funds at any time.
Those rates will also decline, but they give savers more breathing room if conditions change. Many financial planners recommend a mix: use CDs to secure today's higher yields and HYSAs for liquidity.
Why timing matters
The takeaway for 2025 is straightforward. Rates are on the downslope, and waiting too long could mean locking in far lower returns. Savers who want to preserve something close to 4% have a limited window to act.
Our Research Expert
Jake FitzGerald is a full-time Editorial Strategist and Personal Finance Writer at Motley Fool Money, leading content production and distribution while also writing about credit cards, bank accounts, and other financial products. He has more than a decade of experience editing and shaping financial content to give readers clear, trustworthy money advice. His work focuses on delivering practical insights that empower people to make smarter financial decisions. Off the clock, he’s a fan of college football tailgates and still loyal to his favorite putter -- despite what his short game suggests.