There’s a silver lining in the uncertain path of the economy and Federal Reserve rate policy: Some banks are in a holding pattern and paying rich yields for certificates of deposit. Since the end of March, the average rate on a CD has been relatively unchanged, according to Morgan Stanley analyst Betsy Graseck. While 10 of the 38 banks in the firm’s coverage have pulled back their highest offered CD rate since then, the reductions were largely offset by some institutions’ move to raise their yields, she said in a May 9 note. Still, rates are down considerably since last year: The average highest rate has fallen 85 basis points since June 30, 2024, Morgan Stanley found. That’s less than the 100 basis-point reduction in benchmark lending rates made by the Federal Reserve in the second half of last year, however. One basis point equals 1/100th of a percent, or 0.01%. “Our expectation is CD rates stay stable in [the] short-term given uncertainty on the economy and the path of rates,” Graseck said. “Portfolio CD rates should still come down as older CDs reprice lower.” Even as the days of 5% annual percentage yields on CDs are in the past during the current rate cycle, there are still a few places that offer yields exceeding 4% on idle cash. Off peak but still solid “Rates are down from their peak but still attractive,” said Bankrate senior industry analyst Ted Rossman. Currently, the top one-year CD annual percentage yield (APY) available is 4.4%, and you can find it at Sallie Mae and Popular Direct , he said. For those who want to lock in rates for even longer, America First Credit Union has a 60-month CD with an APY of 4.2%. In comparison, the national average for a one-year CD is an APY of 2%, while the average yield on a five-year CD is 1.71%, according to Bankrate data. “There’s such a stark difference between that and the best yields, which are in the mid-4%,” Rossman said. “It doesn’t matter if the bank isn’t a household name, as long as it’s insured by the [Federal Deposit Insurance Corp.] or the [National Credit Union Administration].” The former agency covers deposits at banks, while the latter insures money held at credit unions. In both cases, savers are insured up to $250,000 per institution, per ownership category. Keep your goals in focus Don’t just jump at the opportunity for relatively risk-free yield. Investors should consider their timeline, the purpose for the money they’re stashing in a CD and whether they can keep their hands off it until maturity. That’s because savers are subject to a penalty if they make early withdrawals from their CD. Further, over the long run, these rates are unlikely to keep up with inflation, so the money you’ll need to tap years from now may be better off invested back in the market. “Maybe you’re trying to buy a house in the next year or two and the down payment goes into a one-year CD or you’re preparing to send a child to college in the next year,” Rossman said. “For the right person with the right time horizon, it makes sense.”
