How Much Will CD Rates Drop if the Fed Cuts 50 bps?
Fed funds rate context (September 2026)
Here is the rate environment as of September 28, 2026:
| Metric | Value | What it means for CDs |
|---|---|---|
| Fed funds target range | 3.75-4.00% (since September 16, 2026) | Top of bank cost-of-funds curve |
| Last FOMC move | +0.25 point (September 16, 2026) | A hike. The Fed made no cuts in 2026. |
| Earlier in 2026 | Held at 3.50-3.75% (January, March, April, June, July) | The last cut was in December 2025 |
| Next FOMC meetings | October 27-28 and December 8-9, 2026 | Outcome not known in advance |
| 5-yr Treasury yield | 4.98% (September 25, 2026) | Anchors longer-dated CD pricing |
| Best nationally available 5-yr CD | 4.35-4.50% APY (September 25, 2026) | Top of the retail shelf |
| Best nationally available 1-yr CD | 4.35-4.50% APY (September 25, 2026) | CD shelf is flat from 1 to 5 years |
Sources: Federal Reserve FOMC statements, 2026; U.S. Treasury daily par yield curve, September 25, 2026; DepositAccounts, September 25, 2026.
Translation: An earlier version of this page (June 2026) described a Fed cutting cycle. That was wrong: the Fed held all year, then raised 0.25 point on September 16, 2026. When the Fed does cut, short-term CD yields have historically fallen faster than long-term CD yields, because longer rates already reflect expected policy. After a hold or a hike, CD shelves tend to stay put or drift up. A locked term takes that uncertainty off the table in either direction.
Direct answer: 30-40 bps on the 5-year shelf, 40-50 bps on the 1-year
A 50 bps Fed cut historically pulls CD shelves down by a non-1-for-1 amount depending on maturity. Here is the breakdown.
The math: -50 bps cut applied to current shelves
| Term | Top APY (June 2026) | Expected after -50 bps cut | Drop | % absorption of Fed move |
|---|---|---|---|---|
| 3-month CD | 4.80% | 4.35% | -45 bps | 90% |
| 6-month CD | 4.75% | 4.30% | -45 bps | 90% |
| 1-year CD | 4.75% | 4.30% | -45 bps | 90% |
| 2-year CD | 4.55% | 4.15% | -40 bps | 80% |
| 3-year CD | 4.50% | 4.15% | -35 bps | 70% |
| 5-year CD | 4.55% | 4.20% | -35 bps | 70% |
| 7-year CD | 4.65% | 4.35% | -30 bps | 60% |
| 10-year CD | 4.80% | 4.55% | -25 bps | 50% |
Why the differential: the long end of the curve already prices in expected future Fed moves. When the Fed cuts -50 bps, the bond market often had already priced in -30 bps of it, so the long end only "discovers" the remaining -20 bps. The short end gets the full hit.
The math: dollar impact on $250,000
| Term | Annual interest at current rate | Annual interest after -50 bps | Annual loss | 5-year loss |
|---|---|---|---|---|
| 1-year CD | $11,875 | $10,750 | -$1,125 | -$5,625 |
| 3-year CD | $11,250 | $10,375 | -$875 | -$4,375 |
| 5-year CD | $11,375 | $10,500 | -$875 | -$4,375 |
| 7-year CD | $11,625 | $10,875 | -$750 | -$3,750 |
Why the actual drop is often larger than 50 bps in practice
The published "first-cut" reaction understates the cumulative effect because:
- Markets price in expected future cuts. A single -50 bps cut often signals more cuts ahead, which the long end immediately discounts.
- Bank competition softens. When cuts begin, banks see less incentive to outbid each other for deposits. The top-of-shelf spread compresses.
- Brokered CD issuers reduce volume. Banks that were issuing brokered CDs at premium yields scale back, leaving the shelf thinner and lower.
- Maturity demand shifts. Retail buyers chase the long end during cutting cycles, compressing the term premium further.
Historical -50 bps Fed move analogs
| Date | Fed move | 5-yr CD impact within 30 days |
|---|---|---|
| September 2007 | -50 bps surprise | 5.10% → 4.40% (-70 bps: overshoot due to recession pricing) |
| October 2008 | -50 bps emergency | 3.95% → 3.45% (-50 bps) |
| March 2020 | -50 bps emergency | 2.00% → 1.55% (-45 bps) |
| September 2024 | -50 bps (cycle opener) | 4.85% → 4.40% (-45 bps) |
What actually happened at the 2026 meetings
The June 2026 version of this page modeled a cut at the July 29, 2026 FOMC meeting. It did not happen. The Fed held at 3.50-3.75% on July 29 (three members dissented in favor of a hike) and raised 0.25 point to 3.75-4.00% on September 16, 2026 (Federal Reserve FOMC statements). The best nationally available 5-year CDs paid 4.35-4.50% APY on September 25, 2026 (DepositAccounts).
The absorption percentages above still describe how 50 bps cuts flowed through to CDs in past cycles. If a cut comes at a future meeting (the next are October 27-28 and December 8-9, 2026), apply them to the shelf at that time, not to the June figures on this page.
Action checklist
- If the money has a firm 5-7 year horizon, lock the term instead of guessing the Fed. Longer terms have historically moved least after a cut and give the most years of locked-in compounding.
- Don't try to call the top. In June 2026 this page assumed cuts were coming; the Fed raised instead on September 16, 2026.
- Compare to MYGA: A-rated 5-year MYGAs paid about 5.50-6.05% on October 14, 2026 (public carrier rate sheets), roughly 1.3 to 1.6 points above the best 5-year CDs.
- Skip 1-2 year CDs unless you need the liquidity. They take the biggest hit when the Fed cuts.
Related: CD historical data | MYGA drop estimates | Lock 5yr CD before FOMC? | CD forecast 2026-2027
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Get My Rate-Lock ReviewFAQ
Will CD rates drop the full 50 bps if the Fed cuts 50 bps?
Short-end CDs (3mo-1yr) absorb ~85-90% of the Fed move within 30 days. The 5-year shelf absorbs ~70% (30-35 bps drop). The 10-year shelf absorbs only ~50% because the long end has already priced future cuts.
How fast does the drop happen?
Brokered CDs reprice within 5 business days of the Fed decision. Bank CDs reprice within 2-4 weeks. Credit unions update on monthly cycles.
What if the Fed cuts more than 50 bps?
Using the same ~70% absorption, a 75 bps cut would take roughly 50-55 bps off the 5-year CD shelf. The proportional effect is roughly linear for cuts up to 100 bps; beyond that, recession dynamics distort the relationship.
Does my existing CD's rate change?
No. Issued CDs are contractually locked for the full term. Only new issues and renewals get the new (lower) rate.
Should I lock 1-year or 5-year right now?
It depends on when you need the money. The 1-year shelf takes the biggest hit when the Fed cuts; the 5-year shelf locks 5 years of compounding. On September 25, 2026 the best 1-year and 5-year CDs both paid about 4.35-4.50% APY (DepositAccounts), so the longer term cost no yield. Nobody can say what either will pay in 12 months.
What about brokered CDs vs. bank CDs in this drop?
Brokered CD shelves reprice faster (days vs weeks) but typically maintain a 15-30 bps premium over bank CDs. The premium narrows during cutting cycles as bank competition softens.
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Disclosure
Product rates cited in this article reflect publicly available data as of 2026-06-27 unless another date is shown. Fed policy facts are as of 2026-09-28 (Federal Reserve FOMC statements). CD, MYGA, and HYSA rates change frequently: typically weekly for HYSAs, daily-to-weekly for CDs, and monthly for MYGAs. Always confirm current rates against the carrier's most recent disclosure and the actual contract before purchasing. This is general education, not a personal recommendation or an offer of any product. Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated carriers. CDs are FDIC-insured to applicable limits; MYGAs are backed by the issuing carrier and state guaranty associations (typical coverage $250,000-$300,000 per owner per carrier); HYSAs are FDIC-insured to $250,000 per depositor per institution. MYGAs are long-term contracts with surrender charges; they are not suitable for funds you may need before the end of the surrender period. Past rate trends do not predict future rates. AM Best ratings and tax treatment are subject to change.