Banks lift 1-year CD yields as U.S. rate outlook clouds deposit pricing

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Banks lift 1-year CD yields

Highlights

May's personal consumption expenditures price index rose to 4.1% annually, prompting markets to see a 67% chance of a Fed rate hike by September.
Banks have lifted average 1-year CD yields by 19 basis points quarter-to-date, with new-money rates about 35 basis points above the group average.
Savers can obtain 1-year CD annual percentage yields above 4% from Bread Financial, Citi, and Popular Direct, with Popular Direct offering 4.15% as of Tuesday.

Deposit pricing shifts as rate expectations change

As reported by CNBC, expectations for U.S. interest rates are becoming less clear as persistent inflation alters the outlook that investors held at the start of 2026. After beginning the year expecting rate cuts, markets now increasingly see the possibility of a rate hike as inflation remains elevated.

May's personal consumption expenditures price index registered an annual 4.1%, the highest reading since April 2023. Fed funds futures also indicate a nearly 67% probability of a rate hike in September, based on the CME Group FedWatch tool.

That backdrop is feeding through to deposit products. Bank of America analyst Brandon Berman wrote in a June 25 report that banks continue to raise rates on 1-year CDs in a higher-for-longer environment, adding that the average 1-year CD annual percentage yield quarter to date is up 19 basis points, with new-money rates about 35 basis points above the group average.

BTIG analyst Vincent Caintic wrote in a June 18 report that the divergence between lower savings rates and firmer CD pricing may reflect two competing forces, limited near-term need for deposits because of slower-than-expected loan growth, and expectations of stronger deposit competition if the Fed funds rate rises further.

Where savers still find 4% yields

For savers with short-term goals who can lock up funds for about a year, several banks are still offering annual percentage yields above 4%. Early withdrawal still carries a penalty on CDs, making term selection important for households that may need liquidity before maturity.

As of Tuesday, Bread Financial and Citi each offer 4% on a 1-year CD, while Popular Direct pays 4.15% on the same maturity. Synchrony offers 4% on a 13-month term, and Happen Bank, formerly known as Lending Club, advertises 4.15% on an 11-month CD and 4% on a 14-month maturity.

In our earlier coverage of the Bank of England’s cautious policy stance, we noted that the BoE kept rates unchanged at 3.75% as it weighed inflation risks linked to higher oil prices. Governor Andrew Bailey said policymakers were in no rush to react, arguing that rising market borrowing costs have already tightened conditions and that inflation should still return to the 2% target, albeit more slowly than previously expected.

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