Banking
12-Month CD Rates Rise to 1.55% as Bank Spreads Remain Deeply Negative
1.55%
12-Month CD
+2 bps MoM
-217
CD-Treasury Spread (bps)
Disadvantage
Ultra Low
Deposit Environment
Very High Margins
Deposit rates represent the interest banks pay customers for holding their cash in various accounts. These rates are influenced by the Federal Reserve's benchmark interest rate and the bank's own need for liquidity. Certificates of Deposit, or CDs, typically offer higher rates than standard savings accounts because they require the depositor to lock their money away for a fixed term. When you open a CD, you are essentially lending money to the bank for a set period like twelve months. In return, the bank provides a guaranteed interest rate that is usually higher than a liquid savings account. Understanding these rates is crucial for investors because they represent the risk-free hurdle that other investments must clear. Monitoring the spread between bank rates and government bonds helps determine if you are being fairly compensated for your deposits.
The national average for a 12-month CD rate currently stands at 1.55% as of May 1, 2026. This represents a modest month-over-month increase of 2 basis points, suggesting a slight firming in bank competition for term deposits. However, on a year-over-year basis, the 12-month CD rate has actually declined by 20 basis points. The most striking aspect of the current environment is the massive gap between bank rates and government yields. The 12-month CD rate of 1.55% compares poorly to the 12-month Treasury yield of 3.72%. This results in a deeply negative spread of -217 basis points for depositors choosing banks over the government. Such a wide discrepancy indicates that banks feel little pressure to raise rates to attract or retain capital.
Current Deposit Rates
| Product | Rate | MoM | YoY |
|---|---|---|---|
| 12-Month CD | 1.55% | +2 bps | -20 bps |
| Savings Account | 0.38% | +0 bps | -4 bps |
| Money Market | 0.57% | +0 bps | -5 bps |
| Interest Checking | 0.07% | +0 bps | +0 bps |
Looking across the maturity spectrum, the CD rate curve shows a peak at the 12-month mark before declining for longer durations. The 3-month CD sits at 1.24%, while the 6-month rate is slightly higher at 1.35%. Beyond the one-year mark, the 24-month CD offers 1.50% and the 60-month CD drops further to 1.34%. Outside of fixed-term products, liquid savings accounts are offering a meager 0.38% on average. Money market accounts provide a slightly better return at 0.57%, while interest checking remains negligible at 0.07%. When compared to the current Fed Funds Rate of 3.64%, it is clear that banks are passing on very little of the prevailing interest rate environment to their customers.
CD Curve vs Treasuries
| Maturity | CD Rate | Treasury | Spread (bps) |
|---|---|---|---|
| 3M | 1.24% | 3.60% | -236 |
| 6M | 1.35% | 3.62% | -227 |
| 12M | 1.55% | 3.72% | -217 |
| 24M | 1.50% | 4.09% | -259 |
| 60M | 1.34% | 4.26% | -292 |
Average CD-Treasury Spread
-246 bps
Strong Treasury Preference
CDs significantly underperforming Treasuries
The spread analysis reveals a significant disadvantage for traditional bank savers compared to Treasury investors. At the 12-month maturity, the CD-to-Treasury spread is a staggering -217 basis points. This negative gap widens even further at the long end of the curve, with the 60-month spread reaching -292 basis points. Savers are effectively paying a massive premium for the convenience of keeping their money in a bank versus a brokerage account. There is currently no duration on the CD curve that offers a competitive yield relative to its Treasury counterpart. For any investor with the ability to purchase government debt, the choice is mathematically clear. Treasuries are currently the superior vehicle for cash preservation and yield generation in this Ultra Low deposit regime.
Historical Context
12M CD Rate vs History
43rd
percentile
Normal Range
Normal Range
Range: 0.13% to 1.88%
7 Similar Periods (12M CD ±25 bps of 1.55%)
Nov 2025 (1.64%)Aug 2025 (1.76%)May 2025 (1.75%)May 2024 (1.80%)Oct 2023 (1.79%)Jul 2023 (1.72%)Apr 2023 (1.54%)
Forward Returns from 7 Similar Periods
| Period | KRE Median | KRE % Pos | SPX Median |
|---|---|---|---|
| 3 Month | +11.8% | 86% | +8.7% |
| 6 Month | +16.9% | 86% | +12.5% |
| 12 Month | +20.9% | 100% | +28.9% |
The current 12-month CD rate of 1.55% sits in the 44th percentile of historical data, placing it slightly below the long-term median of 1.62%. This level is consistent with seven historical parallels, including several periods throughout 2023 and 2025. Analysis of these parallel periods shows a very strong historical tailwind for regional bank stocks. Following similar rate environments, the KRE Regional Bank ETF has seen a median 12-month forward return of +20.9%. Remarkably, the KRE has posted positive returns in 100% of these historical instances over a one-year horizon. The S&P 500 also performs exceptionally well from these levels, with a median 12-month return of +28.9%. These statistics suggest that while savers are squeezed, equity investors in the banking sector often see significant gains.
Bank Stock Implications
The current Ultra Low deposit regime is a significant tailwind for bank Net Interest Margins (NIM), leading to very high margins across the industry. Large money center banks like JPM and BAC benefit the most as they maintain massive pools of low-cost deposits. These institutions can lend at market rates while paying depositors a fraction of that income. Conversely, online-focused banks like SOFI and ALLY often face more pressure to offer higher rates to maintain their deposit bases. The recent 19.1% monthly drop in SOFI stock may reflect this competitive pressure or shifting investor sentiment regarding fintech valuations. Regional banks like USB and PNC are currently in a sweet spot where they can maintain low deposit costs without significant outflows. Overall, the environment remains extremely favorable for traditional banking profitability at the expense of the depositor.
What Savers Should Do
Savers should immediately look beyond traditional bank products to maximize their interest income. With 12-month Treasuries yielding 3.72% compared to 1.55% for CDs, the opportunity cost of staying in a bank is too high to ignore. If liquidity is a priority, investors should consider moving funds from standard savings accounts paying 0.38% into money market funds or short-term Treasury bills. High-yield savings accounts (HYSAs) may offer better rates than the national average, but they still likely lag behind direct government obligations. For those who must use CDs, the 12-month term currently offers the best relative value on the bank curve, though it remains objectively poor. Avoid locking into long-term 60-month CDs at 1.34% as you are sacrificing both yield and liquidity. The most effective strategy right now is to bypass the banking system's low pass-through and buy Treasuries directly.
Fed Policy Implications
The transmission of Federal Reserve policy into the broader economy is currently stalled at the deposit level. While the Fed Funds Rate sits at 3.64%, the average 12-month CD rate of 1.55% shows that banks are not passing through the full benefit of higher rates. This lag in deposit beta allows banks to capture a larger share of the interest rate spread for themselves. The Fed's recent actions have seen a year-over-year decline in the benchmark rate of 0.69%, yet deposit rates remain sticky. This dynamic suggests that the Ultra Low regime for savers may persist even if the Fed holds rates steady. Investors should watch for any narrowing of the CD-Treasury spread as a sign that bank competition is finally heating up. Until that happens, the Fed's restrictive policy will continue to benefit bank balance sheets more than household savings.
Bottom Line
The strategic takeaway for May 2026 is to remain overweight on bank equities while avoiding bank deposit products. Historical data shows that when the 12-month CD rate is near 1.55%, regional banks have a 100% track record of positive returns over the following year. The massive negative spreads between CDs and Treasuries confirm that banks are enjoying peak Net Interest Margin conditions. Savers are being penalized for loyalty, making it essential to shift cash into Treasury securities to capture the 200 plus basis point premium. Money center banks like JPM and BAC remain the safest bets for capturing this structural profitability. However, the high VIX of 17.8 suggests some underlying market nervousness that warrants a disciplined entry strategy. Position yourself to profit from the banks' high margins as a shareholder rather than subsidizing them as a depositor.