I’m Not Happy About 5% CD Rates. Here’s Why

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It’s been a pretty impressive year for certificates of deposit (CDs). For much of 2024, 5% CD rates were the norm. And even though 5% CDs are now harder to find, if you dig around, you might still manage to snag one — or at least lock in a rate that’s close to 5%.Alert: highest cash back card we’ve seen now has 0% intro APR into 2026
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
Click here to read our full review for free and apply in just 2 minutes. But while a lot of people have been celebrating 5% CDs — and bemoaning the fact that their days are numbered — I’m actually not such a big fan of 5% CD rates. Here’s the reason.It’s a matter of what 5% CD rates representThe idea of earning 5% on a CD is appealing. As long as your bank is FDIC-insured and your deposit is $250,000 or less, you’re taking no risk with your money while snagging a sweet reward. But what I have an issue with is the reason CDs have been able to pay 5%.CD rates have been elevated all year because the Federal Reserve’s benchmark interest rate has been elevated. And the reason is that the Fed implemented a series of rate hikes in 2022 and 2023 in response to soaring inflation.It’s the job of the Fed to oversee monetary policy and stabilize the economy. When inflation reaches sky-high levels, it’s not good for consumers. By raising the federal funds rate, the Fed indirectly causes the cost of borrowing to increase.It also gives consumers more incentive to keep their money in the bank, where it can earn more interest. Both of these things combined do the job of slowing demand, which allows inflation to cool down.Now that inflation levels have been easing, the Fed is starting to lower its benchmark rate in response. Because of that, CDs won’t be paying 5% for much longer. And many are already paying a bit less.But that’s not a bad thing. Sure, I might earn a bit less money from a CD. But soaring inflation is going to hurt my finances worse than a slightly less attractive CD rate.So no, I’m not a fan of 5% CD rates because of what they represent — surging inflation and more expensive prices just about everywhere I look. I’d rather see CD rates come down if it leads to more moderate prices and a healthier economy on a whole.Look at the big pictureIf you’re sad to see 5% CD rates go, recognize that when CD rates are high, so are mortgage rates, personal loan rates, auto loan rates, and credit card interest rates. And you may not come out a winner with a 5% CD if it means that your next large loan is going to cost you extra or your minimum credit card payments are going to increase as your interest rate surges.This doesn’t mean you shouldn’t open a CD at 5% if you can still find one. You might as well lock in a higher rate on your money if you have a pile of cash you don’t think you’ll need to use for in the near future. And you can click here for a list of the top CD rates today to get started.But do understand that 5% CD rates aren’t the norm for a reason. And recognize that their disappearance could do more good for your finances in an indirect way than you’d expect.Alert: highest cash back card we’ve seen now has 0% intro APR into 2026
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
Click here to read our full review for free and apply in just 2 minutes. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.”}]] [[{“value”:”

It’s been a pretty impressive year for certificates of deposit (CDs). For much of 2024, 5% CD rates were the norm. And even though 5% CDs are now harder to find, if you dig around, you might still manage to snag one — or at least lock in a rate that’s close to 5%.

Alert: highest cash back card we’ve seen now has 0% intro APR into 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

But while a lot of people have been celebrating 5% CDs — and bemoaning the fact that their days are numbered — I’m actually not such a big fan of 5% CD rates. Here’s the reason.

It’s a matter of what 5% CD rates represent

The idea of earning 5% on a CD is appealing. As long as your bank is FDIC-insured and your deposit is $250,000 or less, you’re taking no risk with your money while snagging a sweet reward. But what I have an issue with is the reason CDs have been able to pay 5%.

CD rates have been elevated all year because the Federal Reserve’s benchmark interest rate has been elevated. And the reason is that the Fed implemented a series of rate hikes in 2022 and 2023 in response to soaring inflation.

It’s the job of the Fed to oversee monetary policy and stabilize the economy. When inflation reaches sky-high levels, it’s not good for consumers. By raising the federal funds rate, the Fed indirectly causes the cost of borrowing to increase.

It also gives consumers more incentive to keep their money in the bank, where it can earn more interest. Both of these things combined do the job of slowing demand, which allows inflation to cool down.

Now that inflation levels have been easing, the Fed is starting to lower its benchmark rate in response. Because of that, CDs won’t be paying 5% for much longer. And many are already paying a bit less.

But that’s not a bad thing. Sure, I might earn a bit less money from a CD. But soaring inflation is going to hurt my finances worse than a slightly less attractive CD rate.

So no, I’m not a fan of 5% CD rates because of what they represent — surging inflation and more expensive prices just about everywhere I look. I’d rather see CD rates come down if it leads to more moderate prices and a healthier economy on a whole.

Look at the big picture

If you’re sad to see 5% CD rates go, recognize that when CD rates are high, so are mortgage rates, personal loan rates, auto loan rates, and credit card interest rates. And you may not come out a winner with a 5% CD if it means that your next large loan is going to cost you extra or your minimum credit card payments are going to increase as your interest rate surges.

This doesn’t mean you shouldn’t open a CD at 5% if you can still find one. You might as well lock in a higher rate on your money if you have a pile of cash you don’t think you’ll need to use for in the near future. And you can click here for a list of the top CD rates today to get started.

But do understand that 5% CD rates aren’t the norm for a reason. And recognize that their disappearance could do more good for your finances in an indirect way than you’d expect.

Alert: highest cash back card we’ve seen now has 0% intro APR into 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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