What are normal interest rates? 6 November 2022 at 11:48PM in Savings & investments 11 replies 781 views

sevenhills

Inflation is higher than interest rates at the moment, in the UK. But that wasn't always the case.
Worldwide, what is normal? Banks and government need money to allow people borrow, so they need to attract savers.

El_Torro

What is normal right now, or what is historically normal?

Right now Europe is experiencing high inflation pretty much everywhere, not just the UK. The reliance on Russian energy is hurting most Europeans. In other parts of the world inflation doesn’t seem to be as severe, depending on where you look.

Savings interest rates being lower than inflation is a pretty normal state of affairs by the way. Not just in the UK, elsewhere too. 

Millyonare

The average UK Bank of England (BoE) base rate for the past 50 years between 1972 and 2022 is 7%.

The average UK Bank of England (BoE) base rate this century between 2000 and 2022 is 3%.

The world today in the 21st century is vastly oversupplied with printed cash from the West and billions of new savers from the East. Tens of trillions of dollars of spare cash. It is unlikely we'll ever again see sustained UK base rates above 5-10%, like in the 20th century (assuming no global nuclear war).

Dyor, etc.

adindas

sevenhills said:

Inflation is higher than interest rates at the moment, in the UK. But that wasn't always the case.
Worldwide, what is normal? Banks and government need money to allow people borrow, so they need to attract savers.

In the US the FED inflation target is 2%. So the interest rate should be around that.

eskbanker

There was some debate about what constitutes 'normal' interest rates in another similar thread a couple of weeks ago:

https://forums.moneysavingexpert.com/discussion/6395966/when-will-interest-rates-return-to-normal/p1

jimjames

Doing some clearing out over the weekend and I found a leaflet from Egg from 1999, rate for instant access is 7.25%. That might be a higher rate if they were trying to build business but at the time base rate was 5%.

wmb194

El_Torro said:

Savings interest rates being lower than inflation is a pretty normal state of affairs by the way. Not just in the UK, elsewhere too. 

Historically, if you chase the better rates at least, with savings accounts you've normally been able to earn a real return of between 1% and 2%*. Some years were actually amazing e.g., 2008/09 when RPI turned c.negative 1% and you could easily find 6.5%**+ on one year fixed rate savings bonds.

*As, very conveniently, jimjames' post illustrates.

**IIRC at the time my best was a 6.75% gross, not AER, one year savings bond with Nationwide.

Albermarle

, 2008/09 when RPI turned c.negative 1% and you could easily find 6.5%**+ on one year fixed rate savings bonds.
Yes the year following the Crash was quite lucrative for savers. As far as I remember I had a two year fix with Northern Rock (then nationalised) at 7%.

Ocelot

jimjames said:

Doing some clearing out over the weekend and I found a leaflet from Egg from 1999, rate for instant access is 7.25%. That might be a higher rate if they were trying to build business but at the time base rate was 5%.

I have an old Nationwide interest rate leaflet from 1991, paying 12.5% instant access on £1. Don't think the infltaion rate was quite as high as that at the time.

diystarter7

I recall having 10% bond years ago.
I have considered fixed but nothing decent for a year fix.

sevenhills

Ocelot said:

I have an old Nationwide interest rate leaflet from 1991, paying 12.5% instant access on £1. Don't think the infltaion rate was quite as high as that at the time.

Were the building societies able to offer higher rates than the banks?
Were things different 30/50 years ago? Now money is international, an ordinary person can hold shares of companies in any country or put their money in a foreign bank. So UK banks are competing internationally.