What the 2025 Fed Rate Cuts Mean for CDs

The Federal Reserve cut the federal funds rate by 25 basis points on December 10, 2025. The target range of the Fed rate is now 3.50% to 3.75%. That's still higher than it’s been for most of the last two decades. This decision marks the third rate cut of 2025; the last rate cut was in October 2025. Uncertainty over the direction that inflation may take has likely impacted the trajectory of the Fed rate changes^[0]

» COMPARE: NerdWallet’s best CD rates

This rate, which is what commercial banks use to borrow and lend money to one another, doesn’t directly raise or lower rates on certificates of deposit, but it can affect them indirectly. When there’s a Fed rate increase, you might see higher CD rates. A lowered Fed rate typically leads to lower CD rates.

Here’s a closer look at how it works.

Certificates of deposit: 3.50% APY or higher

The most competitive rates on CDs for six-month and one-year terms have mostly slid down to 4% and into the high 3% range, while the best three-year and five-year CDs are in the mid- to high 3% range, according to NerdWallet analysis in November 2025. CD rates remain higher than they’ve been for most of the past decade, and just as multiple Fed rate increases pushed rates up in the past few years, Fed rate cuts have begun driving them downwards. The highest rates, regardless of the rate environment, tend to be at online banks and credit unions.

» LEARN MORE: CD rate forecast: Are CD rates going up in 2026?

Fed rate decreases mean lower CD rates

As the U.S. central bank, the Federal Reserve tries to keep the economy steady using an important rate it can influence: the federal funds rate. This is roughly the cost of borrowing cash overnight between banks. Typically the Fed lowers its rate to help stimulate the economy and raises it to help curb inflation^[0]

» Learn more: What the Fed rate cut means for savings accounts

Banks generally follow the direction of the Fed funds rate in setting their rates on loans and savings accounts, including newly issued CDs. So a lower Fed rate can result in lower CD rates, but it may not happen instantly^[0]

Locking in high CD rates before they fall further might make sense if your current savings account rates are near 0% and thus not helping to fight inflation.

Are CD interest rates rising?

The short answer is no. We started entering a falling-rate environment in 2024. Rates held steady or slowly dipped for most of 2025, but three Fed rate cuts starting in September 2025 accelerated CD rate drops. And more Fed rate decreases may be coming eventually. The Fed intends to land its rates somewhere in the 3% to 3.50% range within the next year or two, according to the Fed’s Sept. 2025 projections.

How different types of CD rates respond to Fed rate changes

• The most competitive rates change often and respond the most to Fed rate cuts. Online banks and credit unions, which have some of the highest CD rates, will likely continue dropping rates as a response to Fed rate cuts. See more about current CD rates.

• More modest rate changes occur across the banking industry. National average CD rates for one- to five-year terms have dipped since 2024, but more slowly than high-yield rates, according to a NerdWallet analysis of rate data from the Federal Deposit Insurance Corp.

• Some rates barely budge in general. Standard CD rates at some of the largest U.S. banks have barely moved for years, regardless of Fed rate changes.

Note: CD rate changes impact only new CDs available at banks and credit unions, not existing CDs you have. Step-up and bump-up CDs, which are discussed more below, are the two exceptions.

» Learn more: Historical CD rates

Savings accounts vs. CDs

A Fed rate drop can lead to lower rates for regular savings accounts and CDs, but the differences between these accounts can impact which to use and when.

A regular savings account usually has a variable rate, meaning it can change. Your money may earn more interest when the rate rises and less interest when the rate drops. Since you can add or withdraw money over time, this account provides a flexible way to build up savings. See the latest high-yield savings account rates.

A CD generally has a fixed rate. When you open a CD, you lock up an upfront sum of money at one interest rate for a term usually ranging from three months to five years. CD rates tend to be higher than regular savings account rates, but in exchange, you lose access to money in a CD until the term ends unless you pay a penalty to withdraw early.

CDs can be good for setting aside a sum earmarked for a large future purchase, such as a car or house, or simply as a low-risk place for some savings you’ll need years from now. Learn more about when CDs are worth it.

Why would my bank change CD rates but not mine?

A bank generally changes rates on newly issued CDs over time, but CDs that customers already opened don’t have rate changes. The main exceptions are step-up and bump-up CDs, which are structured for potential rate increases during a term. However, bump-up CDs may not have the opportunity for rate increases anytime soon, since these CDs only allow such increases if newly issued CDs of the same term and at the same bank go up.

How to find high CD rates

1. Check out CDs at online banks or credit unions.

Every bank sets its CD rates, but only some have high-yield CDs. Online-only institutions can afford to offer higher rates than brick-and-mortar banks since they don’t have the costs associated with managing a branch network. See the best CD rates.

2. Consider longer CD terms or a CD ladder.

The standard trend is the longer the CD term, the higher the rate. Longer can mean four- to five-year CDs compared to six-month to one-year CDs. Bear in mind, though, another trend: The longer the term, the higher the penalty for an early withdrawal. The penalty is usually interest earned over a number of days or months, or even years.

If you want both ongoing access to some money in CDs and high rates, you might opt for a CD ladder. This involves opening multiple CDs with staggered end dates, allowing you to choose to reinvest or withdraw funds after each CD matures. Learn more about CD ladders.

Keep an eye on CD rates

CDs can be a great way to set aside some savings for a near-future goal. And although each Fed rate decrease might not lead to dramatic changes, it's still a good idea to monitor your bank or credit union’s response and compare it with those of other banks and credit unions.

Other ways to save