Bank Deposit Interest Rates in 2025: Why Higher Returns Are Still Elusive
Despite Federal Reserve rate hikes, banks remain slow to increase deposit interest rates, leaving many savers waiting for better returns.
Although interest rates have climbed significantly over the past year, the average returns on certificates of deposit (CDs) have increased at a frustratingly slow pace.
Consumers might expect that rising benchmark rates set by the Federal Reserve would translate into higher interest earnings on their bank deposits. However, recent analysis from the Federal Reserve Bank of New York reveals that banks are hesitant to pass on these rate hikes to retail customers, and this reluctance is intensifying.
Between March 2022 and March 2023, the effective federal funds rate—the rate at which banks lend to each other—jumped from near zero to 4.65% as part of the Fed's efforts to combat inflation. While yields on money market funds closely mirrored this increase, the average interest rates offered by banks on three-month CDs barely moved, according to the Fed’s findings.
Though attractive CD and high-yield savings account rates are available with diligent searching, the overall trend shows that banks have become increasingly slow in adjusting deposit rates to match the fed funds rate over the past two decades. Meanwhile, money market funds continue to offer competitive yields that keep pace with federal rate changes.
The New York Fed researchers suggest that banks may be relying on retail depositors being less informed or less proactive than professional investors, allowing banks to maintain lower deposit rates.
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