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- CD rates declined at the end of 2024 due to Fed rate cuts and are expected to drop further in 2025.
- The November election introduced uncertainty into the Fed's plans, though.
- If you want to protect against uncertainty, CD ladders can help mitigate risk.
CD rates vary widely across financial institutions. However, if you've been paying attention to the best CD rates, you've likely noticed that CDs have started to decline.
Will CD rates go down more significantly during 2025? We'll go over how CD rates performed in 2024, how CD rates might fare for 2025, and how to decide if you should open a CD now or wait.
Performance for 2024 CD rates
CD rates — as well as other banking products' rates, such as savings accounts, mortgages, and loans — are influenced by changes in the federal funds rate. When the Federal Reserve raises rates, CD interest rates typically go up. If the Federal Reserve, or the Fed, begins cutting its rates, CD rates drop. So when people expect the Fed to cut its rates, that also usually means that CD rates are expected to drop, too.
CD rates hit 10-year highs in 2023, and it was expected that the Federal Reserve would drop its rates in 2024. However, the Fed kept rates steady throughout the first half of 2024 because it wanted yearly inflation rates to hit 2% before it started making cuts.
At the end of 2024, the inflation rate dropped to near the Fed's target rate of 2%.
The Fed cut interest for the first time in four years at the September Fed meeting. It cut rates again in November and December, resulting in a total cut of 100 basis points across the three Fed meetings.
CD rates have declined more since those meetings occurred to match the Fed rate cuts.
"The current interest rate cuts we're seeing are in line with a lot of expectations," says Christopher Stroup, CFP® professional, founder and president of Silicon Beach Financial.
The CME FedWatch Tool, which analyzes the probability of federal rate changes at upcoming Federal Open Market Committee meetings, shows a high likelihood of a rate pause at the next Fed meeting in January, the first of the year.
The current long-term projection is that market conditions are changing, so we'll likely see CD rates and other bank account interest rates get less competitive over time. This means you'll have to say goodbye to 5% interest CDs, which are already hard to find at nationwide financial institutions.
CD rate forecast for 2025
Stroup predicts that the Fed will continue to cut rates in 2025, which means CD yields will go down as well.
"Looking ahead toward the next year or so, the Fed has indicated that they are now in a regime where they're starting to cut interest rates as inflation has seemingly come under control. And so as we see those rates start to drop from the Fed, we should also expect CD rates to fall as well," says Stroup.
Both the Federal Reserve's Summary of Economic Projections December report and the CME Fedwatch tool indicate further rate cuts from the Federal Reserve in 2025 as well. But the election of Donald Trump could make the Fed's job harder and impact important economic factors, which might change what the Fed does in the future.
Trump is planning on imposing tariffs, which could result in higher inflation. The Fed generally deals with rising inflation by raising the federal funds rates, which would lead to higher CD rates. But Stroup says this might not matter for 2025 CD rates.
"Tariffs ultimately have a trickling down effect where consumers are often paying more. If that leads to inflation, which probably wouldn't be seen in the data until 12 to 18 months after the fact, you might see the Fed pause or raise rates again. But I think that's going to be a lagging indicator, in the sense that we won't see it right away," says Stroup. Stroup says we may not understand the tariff ramifications until the middle of Trump's upcoming presidency.
Should I open a CD now or wait?
It might be a good idea to get a CD now, since rates are expected to drop in the future.
"If they want to get in the market for a CD, now might be the better time to lock in that higher yield, so they're shielded — at least for the near term — as rates continue to drop," says Stroup.
That being said, knowing when to open a CD is tough because you'll be locked into whatever rate the CD offered until CD maturity.
Stroup says that a CD ladder can be a good strategy to lock in rates while still having room to adjust to future Fed decisions. A CD ladder is a set of CDs with different term lengths that you open at the same time so that each CD matures at a different point.
For example, you could open a CD ladder with a 1-year CD, a 2-year CD, and a 3-year CD, so you're getting some of your money back consistently in one-year increments. You can choose to renew those CDs as you go or keep the money out if you have an emergency you didn't budget for.
"The CD ladder is the middle-ground approach; you may not perform the best, but you also may not perform the worst. And for most consumers, that kind of outcome is beneficial," says Stroup.
When making a CD ladder, keep in mind that you'll find higher short-term CD rates vs long-term CD rates right now because banks are predicting that rates will fall in the future. This trend is called an inverted yield curve. It's generally expected that long-term CDs offer higher interest rates than short-term CDs. That being said, the differences between short-term CD rates and long-term CD rates have gotten smaller since the Fed started lowering its rates.
Alternatives to CDs to help prepare for falling rates
If you don't want to lose access to your funds, high-yield savings accounts and money market accounts from online banks offer high variable interest rates that will let you earn a good yield while still letting you withdraw money easily. Right now, you can even get slightly better rates from them than from CDs, since banks aren't committing to an interest rate with high-yield savings accounts and money market accounts like they are with CDs.
However, neither account will help you prepare against Fed rate drops the same way CDs do. Banks can just change your savings account or money market account interest rate as soon as the Fed drops rates.
You might want to consider bonds an alternative to CDs, though. When comparing bonds vs. CDs, the two are fairly similar: you give up access to your money for a time in exchange for a fairly low return on investment. But bonds aren't FDIC-insured and can come with more risk than CDs, since you're essentially making a loan to the bond issuer. They also tend to be longer-term than CDs, and you can sell your bonds before they mature on the secondary market.
CD rate forecast FAQs
It's unlikely that CD rates will go up in 2025. CD rates declined somewhat in 2024 after reaching significant highs in 2022 and 2023. It's expected that CD rates will continue to decline in 2025, since rates are still relatively high compared to historical CD rates. But a Donald Trump presidency could shake that up.
Economists expect CD rates to continue to go down in 2025, but it's possible that a Donald Trump presidency could impact interest rate fluctuations.
CD rates are likely to lower in 2025, so you might want to lock in a CD now to ensure you earn a high rate. However, if you want to mitigate the risk of locking in a bad rate, a CD ladder might be a good choice.
CD rates are likely to go down overall in 2025. If the Fed lowers its rates, CD rates will also go down more.
The Fed's December 2024 Summary of Economic Projections indicates that CD rates will continue to go down in the future. But this document doesn't account for Donald Trump's election to the U.S. presidency, which could change the Fed's plans.
