The Supply and Demand of Deposits: Why San Diego CD Rates Differ from the National Average

Many people assume interest rates move uniformly across the country in response to Federal Reserve policy, but the reality is national and local economic forces influence financial markets. Interest rate movements for banks and credit unions are driven by the same economic principles (e.g., supply and demand) that end up determining the price of housing, labour, and consumer goods. Because financial institutions compete with each other under different competitive conditions, CD rates vary significantly from one region to another even when the broader monetary policy remains the same.

An example of this trend can be seen in the San Diego region. The banking environment for San Diego is unique in that it consists of a population that is predominantly high income, has a sizeable military presence, is involved in a growing biotechnology industry, and has a highly active housing market. These are all factors that influence how much money banks and other financial institutions within San Diego have available to fund loans and support liquidity. Therefore, the rates on CDs for institutions in San Diego are usually based more on economic conditions relative to the area instead of national averages.

When analysing average national interest rates on CDs offered by traditional banking institutions, most traditional institutions typically offer lower than average rates on CDs. For example, in late 2025, traditional banks in the United States offered average 12-month CD rates of approximately 2.35% while credit unions offered an average of approximately 3.03% for the same term. At the same time, however, certain California financial institutions continue to have promotional offers available providing rates exceeding 3% on many one-year certificates of deposit, thus demonstrating the difference between the different rate opportunities available in a local market versus the national average.

The primary reason why this difference exists between interest rates in San Diego and the rest of the United States or even the rest of the world has to do with competition. The financial market concentrated in the San Diego area has many banks and credit unions competing against one another for deposits. Community banks and credit unions tend to offer higher rates on CDs relative to larger national banks because smaller credit unions generally do not have as much capability as larger banks to use their branch networks and established customer base to generate new business.

The best example of this would be seen within the San Diego area, especially in the area of credit unions. When a local credit union is in need of additional deposits in order to continue providing lending capabilities, they frequently raise rates on CDs in order to attract depositors. Because credit unions are member-owned institutions that focus primarily on the region in which they are located, they are typically more likely than larger national banks to pass on higher returns to their savers.

A significant driving economic factor is the changing banking environment in California. Competitive pressure on deposits in California has increased dramatically due to several large-scale banking failures and the resulting disruption of wholesale banking due to mergers. From mid-2022 to mid-2025, California experienced an 18% decrease in total deposits, thereby creating additional pressure on many financial institutions to find new and/or alternative sources for funding and defend their share of deposit markets. The availability of deposits within a local market can fluctuate over time, therefore the cost of deposits (CD yield) is likely to increase as depository institutions experience deposits becoming more difficult to acquire.

Demographics in the San Diego marketplace matter. The demographic profile of the San Diego metropolitan area includes a significant amount of household wealth; however, the higher availability of competitive deposit rate offers, resulting from the Federal Reserve's recent tightening cycle has led many savers within the San Diego County market to become more sensitive to deposit rates and more actively compare deposit rates across multiple financial institutions via the internet. Many savers have shifted their available funds from banks and cash-management providers within San Diego County to institutions offering the highest deposit rates, thereby continuing to increase competitive pressure on the depository institutions within the San Diego market.

The existence of CD marketplaces, such as CD Valet, provide verified CD rates and rate comparison capabilities for savers and allows them to view CD-rate offers from multiple federally insured banks and credit unions (CU) that may be offering higher yields than the ones they would normally consider. By reviewing sources using these tools, savers can locate institutions that they may not have otherwise known existed and identify the best CD offers available in San Diego.

Higher CD rates also increase the cost of funds for depository institutions, directly impacting the profitability of these institutions and potentially increasing the overall cost of funds within our economy. However, for consumers, elevated local CD yields provide a number of benefits. For example, if a saver were to place $100,000 into a one-year CD that pays a 3.25 percent interest rate versus a one-year CD with a 2.03 percent interest rate, they would earn approximately $1,220 more annually on the higher-yielding CD. Over time, the difference between the two will accumulate and affect the overall value of household wealth.

Therefore, the difference between San Diego CD yields and CD yields across the country results from the regional competition, area demographic characteristics, scarcity of deposits and the ongoing supply-demand interaction between the market and the depository institutions competing for deposits. So long as depository institutions are competing for funds and savers are willing to shop for superior yields, disparities in CD yields between different regions will persist.