Nothing like inflation and an aggressive series of rate hikes by the Fed to wake CDs from a decade-and-a-half slumber.
CD balances more than doubled in 2023, driven by increasingly attractive rates that lured funds from liquid balances. In percentage terms, at year end, they accounted for roughly a quarter of the overall deposit portfolio (see chart, left side). But month-over-month growth slowed in the latter half of the year, stabilizing at around 5% (see chart, right side). The deceleration was likely due to deposit acquisition costs easing as expectations grew that interest rates would be cut in 2024.
These data indicate that CDs may be losing their efficiency as a way to acquire new deposits. Renewals, on the other hand, should remain robust. Strong growth in 2023 means a high volume of CDs will mature each month this year.
So, even though their growth rate may be moderating, CDs will represent a substantial share of deposits in a higher-for-longer environment and will be critical to a depository institution’s success.
CD Growth Trends in 2023
CD balances have grown to almost a quarter of the industry portfolio, but the speed of growth is leveling off.
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