Certificates of deposit (CDs) have long been a favored savings tool for those seeking safety and predictability in their investments. These interest-bearing accounts have been even more popular in recent years though as the high-rate environment offered savers an enticing opportunity to earn big interest on the money they deposited. But the economic environment is shifting now that inflation is cooling and the Federal Reserve has slashed its benchmark rate twice in response, which has led CD rates to experience a decline. 

Even with this downward trend, though, CDs continue to offer compelling returns compared to historical averages, particularly when measured against the near-zero rates that characterized much of the previous decade. For perspective, it’s still easy to find CD rates above 4% right now, but savers were fortunate to find CD rates above 1% as recently as 2021, making today’s rates notably attractive even after recent declines. When you factor in the other benefits of investing in a CD, like getting a fixed, locked rate for the entire term, it makes sense to consider investing in CDs as part of your broader investment strategy.

Still, this evolving rate environment presents both challenges and opportunities for strategic savers, leading to some hesitation for those considering locking their funds into one of these accounts. But while the natural instinct might be to shy away from CDs as rates decline, it’s important to understand how far CD rates have actually fallen this year — as well as the enduring benefits of these financial instruments.

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Here’s how far CD rates have dropped this year

To illustrate the change in CD rates that has occurred so far in 2024, let’s look at the average CD rates from January 2 as well as today’s averages (according to Bankrate data).

6-month CD rates

• Average 6-month CD rate on January 2: 5.50%
• Average 6-month CD rate today: 4.85%

Total percentage drop: 11.81%

1-year CD rates

• Average 1-year CD rate on January 2: 5.66%
• Average 1-year CD rate today: 4.50%

Total percentage drop: 20.49%

3-year CD rates

• Average 3-year CD rate on January 2: 4.75%
• Average 3-year CD rate today: 4.20%

Total percentage drop: 11.57%

5-year CD rates

• Average 3-year CD rate on January 2: 4.60%
• Average 3-year CD rate today: 4.35%

Total percentage drop: 5.43%

As illustrated above, the decline in CD rates has varied by term, with 1-year CDs seeing the most significant drop. These shifts can largely be attributed to the broader economic adjustments, such as market responses to Federal Reserve interest rate policies. Lower rates often indicate a cautious market, signaling that economic growth may be slowing or that inflationary pressures are easing, both factors that banks consider when setting CD rates. Still, even with these adjustments, CDs offer some of the most attractive yields for secure savings accounts.

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Why you should still open a CD now

CDs are still an excellent option for conservative investors or anyone looking to secure a stable return without market exposure, even at today’s lower rates. Here’s why:

• Guaranteed returns and safety: CDs provide a fixed, guaranteed return on investment, regardless of market fluctuations or future rate cuts. This stability is particularly appealing during uncertain economic times when other investments may present more volatility. For many, this peace of mind alone makes a CD worthwhile, especially when saving for short- to medium-term goals.
• Higher yields compared to savings accounts: Even with this year’s rate drops, CD rates remain higher than most standard savings or money market accounts. For example, a 1-year CD today offers an average rate of 4.50%, while the average savings account rate is currently just 0.45%. This spread can make CDs a better choice for funds you don’t plan to access for the term length, giving your money a chance to grow at a higher rate.
• Predictability for financial planning: With CDs, you know exactly what your return will be at the end of the term. This predictability helps with budgeting and financial planning, making CDs ideal for earmarked funds such as emergency savings, future down payments or anticipated large expenses. 
• Potential tax benefits on longer terms: The potential tax advantages can also help enhance overall returns on longer-term CDs. While CDs are subject to income tax, tax-advantaged accounts like IRAs often allow CDs to grow tax-free until withdrawal. This option can be particularly appealing for long-term savers, as it lets returns accumulate more efficiently, effectively offsetting some of the recent rate drops.

The bottom line

While this year has seen a decline in CD rates across all terms, the value proposition of CDs remains strong, especially for those prioritizing safety, fixed returns and ease of financial planning. Even with the rate reductions, CDs can offer higher yields than regular savings accounts and the security of knowing your investment is FDIC-insured up to the standard limit. As the economic landscape continues to evolve, it’s worth considering the potential for future rate shifts, but locking in a CD today can still provide benefits for savers seeking reliable, stable returns on their cash.