The Death of the Certificate of Deposit: Will CD Rates Ever Rebound?

Certificates of deposit, commonly known as CDs, were considered a goldmine by our parents and grandparents for the alluring CD rates once offered. Since their time, however, interest rates on CDs and other deposit accounts have caused the hype around CDs to almost seem like an old wives' tale.

However, the CD rates of yesteryear were no myth, as they put today's puny average rate of 0.50 percent APY (for a 6-month CD) to shame.

What is a Certificate of Deposit?

As far as deposit accounts go, a certificate of deposit was once regarded as just about the best investment for your money. Also known as a time-deposit account, the balance on a CD remains on deposit for a fixed term--often, terms are set at 6 months, 1 year, 2 years, or 5 years, but CD terms vary by institution.

Essentially, depositors promise to lend financial institutions a predetermined amount of money for a fixed time period in exchange for a higher interest rate than what a traditional savings account generally offers. When the CD account's term ends, the depositor can withdraw the principal deposit and all earned interest.

The major appeal of CDs is usually their high-yield opportunities and their low-risk nature as an investment. While these two positive aspects of CDs may have been relevant in years past, current CD rates no longer reign as having the best gains around.

CD Rates: A History

Americans quickly recognized the interest-earning potential of CD rates, especially at its height in the late-70s and early-80s.

According to, a 6-month CD generated an average rate of return of as much as 17.98 percent APY in August 1981. Certificates of deposit, particularly long-term CDs, received acclaim for their unprecedented interest rates that rivaled the competitiveness of other high-risk savings and investment ventures.

These numbers, however, have died down considerably as 6-month CDs have fallen from grace, settling below 1 percent since 2009.

Are CDs Underrated?

Despite CD rates hitting all-time lows, there are still clear benefits to be found, depending on the type of CD and the financial outlook of certain depositors.

The fact is that interest rates are never going remain at a constant upward climb, because interest rates are heavily influenced by economic conditions like unemployment and are also guided by the Federal Reserve.

While current CD rates are diving closer to zero, if interest rates ever did get that low, they can only move up from there. In June 2003, the average 6-month CD rate was at 1.01 percent APY--still a far cry from the almost 18 percent of decades past--but, eventually, CD rates turned around to about 5.54 percent APY in July 2006.

Further, CD rates may not be as dazzling as they once were in the 1980s, but there are still good reasons to open a CD account:

Federal Insurance: One thing that lasted the test of time for CD accounts is that funds are still federally insured either by the Federal Deposit Insurance Corporation or the National Credit Union Administration, depending on whether the account is held at a bank or credit union, respectively. So, in the event that your banking institution plummets and fails, your investment doesn't go down with the ship. This guarantee is available to depositors for up to $250,000.

Some institutions are still competitive in the market: You may not be able to retire off of the current CD rates, but certain banks and credit unions provide better than average rates. For example, depositors can still find CD rates at above 1 percent. This is still higher than the embarrassing interest rates of big-name banks who only offer 0.05 percent APY on a 6-month term CD.

It's a great tool for impulsive spenders: If you're a spontaneous spender and you have the financial leeway to lock away extra funds, a CD account can be a reliable tool to discourage bad habits. Depositors with a natural impulse to get a little out of control at the checkout counter can temper their spending, at least for the short-term.

Should You Invest in Current CD Rates?

CD accounts are hardly anything to celebrate at the moment, but claiming that they're a dying financial product might be going one step too far. The roller coaster effect of current CD rates is not considered normal compared to the interest rates found two to three decades ago, but depending on your specific needs, there are some positives that can still be found by opening a CD.

Jennifer Calonia writes for, your source for the best CD rates, savings account rates, personal finance news and more.

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