What You Need to Know About CD Rate Changes for 2025

The Federal Reserve recently cut interest rates for the first time since the 2020 onset of the COVID-19 pandemic. However, this is expected to be just the first in a series of rate cuts over the next couple of years at a minimum.

CD rates at top online banks have fallen a bit as a result of the initial rate cut, but still remain near their highest level in more than a decade. But if the Fed continues on the expected path of rate-cutting, what would that mean for CD rates in 2025? Here's a rundown of what we know, what we don't know, and how CD rates could be impacted.

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Expected interest rate changes in 2025

The Federal Reserve recently lowered the benchmark federal funds rate for the first time in more than four years, but this is widely expected to be just the beginning. Along with the rate cut, the Fed also released the economic projections of its members, and the median expectation of the policymakers is for another 150 basis points (1.50 percentage points) of rate cuts between now and the end of 2025.

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Product	APY	Min. to Earn
American Express® High Yield Savings Member FDIC. APY 3.80% Rate info 3.80% annual percentage yield as of December 29, 2024. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	3.80% Rate info 3.80% annual percentage yield as of December 29, 2024. Terms apply.	$0	Open Account for American Express® High Yield Savings On American Express's Secure Website.
Capital One 360 Performance Savings Member FDIC. APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.	$0	Open Account for Capital One 360 Performance Savings On Capital One's Secure Website.
Western Alliance Bank High-Yield Savings Premier Member FDIC. APY 4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website. Member FDIC.	4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	$500 to open, $0.01 for max APY	Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website.

How has the recent Fed rate cut affected CD rates?

CD rates and the benchmark interest rates set by the Federal Reserve don't have a direct relationship. In other words, if the Fed lowers rates by 1 percentage point, there's no rule that says banks have to do the same. However, since a lower federal funds rate impacts banks' borrowing costs, financial institutions tend to move their CD yields in the same direction.

With that in mind, let's take a look at how the recent 50-basis-point Fed rate cut has affected CD rates so far. Here are a couple of examples from our top online banks:

• As of mid-July (before the rate cut), Discover® Bank was paying 4.70% on a 1-year CD, 4.40% on an 18-month CD, and 3.75% on a 5-year CD. On Oct. 23, these rates were 4.10%, 3.80%, and 3.40%, respectively.
• Another of the highest-yielding banks on our radar, Barclays, was paying 4.85% on a 1-year CD, 4.00% on a 2-year CD, and 3.75% on a 5-year. Now, the rates on those same three CDs are 3.75%, 3.00%, and 3.25%.
• Finally, LendingClub was offering yields of 4.60% on a 1-year CD, 4.50% on a 2-year CD, and 4.00% on a 5-year CD. Today, those rates are 4.00%, 3.75%, and 3.40%.

The general idea is that CD rates have fallen in response to the Fed's rate cut, and the shorter-term CDs generally saw the sharpest downward moves.

Where will CD rates go in 2025?

To be perfectly clear, nobody has a crystal ball that can tell you what CD rates will be at any point in the future, but if the Fed continues to cut rates at the expected pace, it's fair to assume that CD yields will trend downward in 2025.

I would expect shorter-term CDs to be most affected by Fed rate cuts. While I don't want to turn this into an economics lesson, the simplified explanation is that short-term yields are primarily based on the current interest rate environment, and longer-term yields are primarily based on interest rate and economic expectations.

So, if the Fed cuts rates by 1.50 percentage points between now and the end of 2025, I'd expect yields on 6-month or 1-year CDs to move lower by roughly the same amount. I'd expect the same for high-yield savings accounts as well. But for 5-year CDs and other relatively long terms, I'd expect a much lower decline as long as rate expectations or the macroeconomic conditions don't change too much.