Interest rates: What was it like back in the day?

george4064
george4064 Posts: 2,810 Forumite
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I'm a 'nineties kid', so I've only ever really known interest rates to be very low (<1%), and on average saving accounts paying around 1.25% interest.


So, what was it like back in the day when the official interest rate was 5%? or 10%? What was the average savings account paying?


Also, another theoretical question which I've been wondering about: whats stopping me from putting my money into a Vietnamese savings account and taking advantage of their 6.25% official interest rate?


Thanks in advance and I look forward to reading your responses!
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  • ttoli
    ttoli Posts: 825 Forumite
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    When I first moved to North Cyprus in 2005 , banks were paying 23% , now dropped to 14% . (Turkish Lira) , or 6% for GBP accounts.
  • ttoli
    ttoli Posts: 825 Forumite
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    george4064 wrote: »
    I'm a 'nineties kid', so I've only ever really known interest rates to be very low (<1%), and on average saving accounts paying around 1.25% interest.


    Also, another theoretical question which I've been wondering about: whats stopping me from putting my money into a Vietnamese savings account and taking advantage of their 6.25% official interest rate?


    Thanks in advance and I look forward to reading your responses!
    May depend on what you need to open an account there, proof of residency etc
  • Malthusian
    Malthusian Posts: 10,931 Forumite
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    When I first had bank accounts to manage I can remember having to switch accounts to get 5% or 6%. Rather than listen to my anecdata, you might be interested in this table which shows what typical bank savings accounts paid.
    Also, another theoretical question which I've been wondering about: whats stopping me from putting my money into a Vietnamese savings account and taking advantage of their 6.25% official interest rate?


    Nothing. But the 6.25% interest rate is neither here nor there. Your return would depend mostly on how the exchange rate moved between the dong and the pound - unless of course you're planning a trip to Vietnam and you can spend your dongs over there. If not, it's highly likely that the currency swings would make the 6.25% interest almost irrelevant.


    The reason Vietnamese banks pay 6.25% interest and UK banks pay 1% is because the dong is expected to fall in value by more than the pound (i.e. Vietnamese inflation is expected to be higher). Therefore the Vietnamese banks need to offer a higher rate of return to persuade you to keep your dongs with them, instead of spending them, than UK banks. Consequently, the expectation for someone in the UK considering investing in a Vietnamese bank would be that the dong would fall in value against the pound which would cancel out the extra interest.


    That is the expectation which is priced into the Vietnamese and UK banking markets, but in reality currency markets are so volatile it is impossible to know what the return would be. Most people putting their money in either UK or Vietnamese banks are not interested in gambling on the forex market.
  • george4064
    george4064 Posts: 2,810 Forumite
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    Malthusian wrote: »
    When I first had bank accounts to manage I can remember having to switch accounts to get 5% or 6%. Rather than listen to my anecdata, you might be interested in this table which shows what typical bank savings accounts paid.




    Nothing. But the 6.25% interest rate is neither here nor there. Your return would depend mostly on how the exchange rate moved between the dong and the pound - unless of course you're planning a trip to Vietnam and you can spend your dongs over there. If not, it's highly likely that the currency swings would make the 6.25% interest almost irrelevant.


    The reason Vietnamese banks pay 6.25% interest and UK banks pay 1% is because the dong is expected to fall in value by more than the pound (i.e. Vietnamese inflation is expected to be higher). Therefore the Vietnamese banks need to offer a higher rate of return to persuade you to keep your dongs with them, instead of spending them, than UK banks. Consequently, the expectation for someone in the UK considering investing in a Vietnamese bank would be that the dong would fall in value against the pound which would cancel out the extra interest.


    That is the expectation which is priced into the Vietnamese and UK banking markets, but in reality currency markets are so volatile it is impossible to know what the return would be. Most people putting their money in either UK or Vietnamese banks are not interested in gambling on the forex market.

    I thought it might be something to do with FX movements and inflation, however (easier said than done) couldn't someone just put a load of money into Dong and Vietnamese banks and hedge back the exposure?
    "If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett

    Save £12k in 2021 - #027 £15,268 (76%)
  • eskbanker
    eskbanker Posts: 30,939 Forumite
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    george4064 wrote: »
    I'm a 'nineties kid', so I've only ever really known interest rates to be very low (<1%), and on average saving accounts paying around 1.25% interest.


    So, what was it like back in the day when the official interest rate was 5%? or 10%? What was the average savings account paying?


    Also, another theoretical question which I've been wondering about: whats stopping me from putting my money into a Vietnamese savings account and taking advantage of their 6.25% official interest rate?
    This recent thread discussed both the (lack of) wisdom of saving abroad and historical UK savings interest versus inflation....

    https://forums.moneysavingexpert.com/showthread.php?t=5838916
  • El_Torro
    El_Torro Posts: 1,463 Forumite
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    george4064 wrote: »
    So, what was it like back in the day when the official interest rate was 5%? or 10%? What was the average savings account paying?



    When I started working in the early 2000s, til the crash, I remember getting 5-6% interest rates in ISAs and savings accounts quite easily, assuming you were willing to move money around when sign up bonuses expired.


    This gave less of an incentive to invest in the stock market, since those kind of interest rates were inflation busting. I did invest some money, though probably less than I would under today's circumstances.


    I don't really remember the high interest rates of the eighties, though as others have alluded to in this thread you also need to look at the inflation rate, as that was also very high at the time. Doesn't really help when you're trying to pay off a mortgage either.
  • ColdIron
    ColdIron Posts: 9,016 Forumite
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    Inflation was high and I paid mortgage rates of 9%, 10%, 11%, 12% and 12% per year. Higher interest rates at banks didn't do much to offset either of these
  • spadoosh
    spadoosh Posts: 8,732 Forumite
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    ColdIron wrote: »
    Inflation was high and I paid mortgage rates of 9%, 10%, 11%, 12% and 12% per year. Higher interest rates at banks didn't do much to offset either of these

    No your wage growth did.

    Average wage growth in the 70's sat at 15% and peaked at 30%.
  • tg99
    tg99 Posts: 1,198 Forumite
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    george4064 wrote: »
    I thought it might be something to do with FX movements and inflation, however (easier said than done) couldn't someone just put a load of money into Dong and Vietnamese banks and hedge back the exposure?

    No because the interest rate differential will be reflected in the price of the fx forward contract used to hedge your Dong exposure, i.e. the interest rate pick up from holding Dong will be offset by the cost of the hedge.
  • MallyGirl
    MallyGirl Posts: 6,611 Senior Ambassador
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    when I bought my first flat in 1991 my mortgage interest rate was 14%. My £41,800 mortgage cost me over £400 in interest each month (on top of the endowment payment). On my £14k salary there weren't any savings for quite a while, by which time interest rates had got less eye watering.
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