Over the past two years, during which the Fed implemented its most aggressive rate-hiking regimen of the last decade, demand for CDs surged to a new peak. Now, as rates have fallen, banks have moved quickly to follow the Fed’s lead in reducing CD rates to depositors at an 80%+ beta, and the impact has come quickly.
Only a month after the first Fed rate cut in September 2024, flows into CDs turned from positive to negative for the average bank, according to Curinos’ Retail Deposit Analyzer, and it affected even those banks that had been in the top quartile of CD growth. For the top performers, CD volumes have still dropped by more than two-thirds—from 4% per month to only ~1%—even though they’re offering top-of-the-market rates! (See Figure 1)
Figure 1: Monthly CD Growth
Industry Average vs. Top Quartile Jan ‘24 – Feb ‘25
Source: Curinos Consumer Deposit Analyzer. | Note(s): Consumer balances only. Online banks excluded. Simple averages displayed.
But the CD contraction is hardly all bad news: the Fed’s actions almost immediately tipped the scales from CDs to many high-yield savings and money market products. (See Figure 2) That’s because relative to CD rates, savings rates have fallen less, and the rate premium has narrowed. For many consumers, today’s diminished CDs rates appear no longer to be sufficient to overcome the downside of locking up their funds, and as a result savings accounts have become the biggest beneficiary of the flight from CDs.
Figure 2: Monthly Savings/MMDA Growth
Industry Average vs. Top Quartile Jan ‘24 – Feb ‘25
Source: Curinos Consumer Deposit Analyzer. | Note(s): Consumer balances only. Online banks excluded. Simple averages displayed.
With CD rates expected to gradually move lower, the reduction in CD volumes could become a competitive advantage for banks that are well positioned to capture those maturing CD balances in an attractive savings/money market product.
