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  • FIRST POST
    • george4064
    • By george4064 15th May 18, 1:58 PM
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    george4064
    Interest rates: What was it like back in the day?
    • #1
    • 15th May 18, 1:58 PM
    Interest rates: What was it like back in the day? 15th May 18 at 1:58 PM
    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!
    "If you arenít willing to own a stock for ten years, donít even think about owning it for ten minutesĒ Warren Buffett

    Save £12k in 2016 - #045 £10,358.81/£12,000 (86%)
    Save £12k in 2017 - #003 £12,427.51/£12,000 (104%)
    Save £12k in 2018 - #004 £4,457.62/£12,000 (37%)
Page 1
    • ttoli
    • By ttoli 15th May 18, 2:03 PM
    • 683 Posts
    • 439 Thanks
    ttoli
    • #2
    • 15th May 18, 2:03 PM
    • #2
    • 15th May 18, 2:03 PM
    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
    • By ttoli 15th May 18, 2:04 PM
    • 683 Posts
    • 439 Thanks
    ttoli
    • #3
    • 15th May 18, 2:04 PM
    • #3
    • 15th May 18, 2:04 PM
    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!
    Originally posted by george4064
    May depend on what you need to open an account there, proof of residency etc
    • Malthusian
    • By Malthusian 15th May 18, 2:07 PM
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    Malthusian
    • #4
    • 15th May 18, 2:07 PM
    • #4
    • 15th May 18, 2:07 PM
    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
    • By george4064 15th May 18, 2:26 PM
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    george4064
    • #5
    • 15th May 18, 2:26 PM
    • #5
    • 15th May 18, 2:26 PM
    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.
    Originally posted by Malthusian
    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 arenít willing to own a stock for ten years, donít even think about owning it for ten minutesĒ Warren Buffett

    Save £12k in 2016 - #045 £10,358.81/£12,000 (86%)
    Save £12k in 2017 - #003 £12,427.51/£12,000 (104%)
    Save £12k in 2018 - #004 £4,457.62/£12,000 (37%)
    • eskbanker
    • By eskbanker 15th May 18, 2:27 PM
    • 7,547 Posts
    • 8,190 Thanks
    eskbanker
    • #6
    • 15th May 18, 2:27 PM
    • #6
    • 15th May 18, 2:27 PM
    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?
    Originally posted by george4064
    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
    • By El Torro 15th May 18, 2:40 PM
    • 294 Posts
    • 271 Thanks
    El Torro
    • #7
    • 15th May 18, 2:40 PM
    • #7
    • 15th May 18, 2:40 PM
    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?
    Originally posted by george4064


    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
    • By ColdIron 15th May 18, 3:02 PM
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    ColdIron
    • #8
    • 15th May 18, 3:02 PM
    • #8
    • 15th May 18, 3:02 PM
    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
    • By spadoosh 15th May 18, 3:11 PM
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    spadoosh
    • #9
    • 15th May 18, 3:11 PM
    • #9
    • 15th May 18, 3:11 PM
    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
    Originally posted by ColdIron
    No your wage growth did.

    Average wage growth in the 70's sat at 15% and peaked at 30%.
    Don't be angry!
    • tg99
    • By tg99 15th May 18, 3:29 PM
    • 664 Posts
    • 259 Thanks
    tg99
    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?
    Originally posted by george4064
    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
    • By MallyGirl 15th May 18, 3:29 PM
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    MallyGirl
    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.
    • movilogo
    • By movilogo 15th May 18, 3:34 PM
    • 2,348 Posts
    • 1,574 Thanks
    movilogo
    Not much benefit thinking what was there.

    If interest rate goes up to 1990s level again, there will be riots in the streets.

    It is not going to happen in short run.
    Happiness is buying an item and then not checking its price after a month to discover it was reduced further.
    • kidmugsy
    • By kidmugsy 15th May 18, 3:34 PM
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    kidmugsy
    In the late 70s annual RPI inflation reached 27% p.a. in the worst quarter (from memory - by all means check). Interest rates fell well short of that.

    Neither a borrower nor a lender be but if in doubt be a borrower.
    Free the dunston one next time too.
    • eskbanker
    • By eskbanker 15th May 18, 4:18 PM
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    eskbanker
    In the late 70s annual RPI inflation reached 27% p.a. in the worst quarter (from memory - by all means check).
    Originally posted by kidmugsy
    Thought I'd check out of curiosity and your memory didn't deceive you (within a reasonable tolerance!), it peaked at 26.9% in August 1975 according to the official ONS figures:

    • spadoosh
    • By spadoosh 15th May 18, 4:28 PM
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    spadoosh
    Thought I'd check out of curiosity and your memory didn't deceive you (within a reasonable tolerance!), it peaked at 26.9% in August 1975 according to the official ONS figures:

    Originally posted by eskbanker
    Yeh it was the same year were wage inflation peaked at 30%.
    Don't be angry!
    • Stubod
    • By Stubod 15th May 18, 4:29 PM
    • 490 Posts
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    Stubod
    ..yes, interest rates are all relative to inflation. I would rather have 2% interest and 1.5% inflation than 8% interest and 15% inflation. Historically, (from what I can remember), there have been long periods where interest rates always exceeded inflation...just not for the last 10 years or so. We never bothered with investments as we could always get enough interest through normal savings accounts. (the last "big one" I remember was the Halifax saver paying 10%...we had to queue for that one.....happy days....
    • spadoosh
    • By spadoosh 15th May 18, 4:38 PM
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    spadoosh
    ..yes, interest rates are all relative to inflation. I would rather have 2% interest and 1.5% inflation than 8% interest and 15% inflation. Historically, (from what I can remember), there have been long periods where interest rates always exceeded inflation...just not for the last 10 years or so. We never bothered with investments as we could always get enough interest through normal savings accounts. (the last "big one" I remember was the Halifax saver paying 10%...we had to queue for that one.....happy days....
    Originally posted by Stubod
    Theyre not. How do you explain increased inflation recently? Or look at inflation about 2012 (sorry its 2011) where it spiked to about 12% (and sorry that was food inflation, not RPI) with more or less no fluctuation in interest rates. (inflation is generally now determined by the price of oil.)

    I couldnt make my mind up on those two figures. I would need to know what wage inflation was looking like.

    Whilst you might prefer interest rates of 2% and inflation of 1.5% the equivalent in my lifetime was about 3-4 years ago. Some couldve got that (i couldnt as relatively new buyer) but their real earnings growth (inflation v wages) was about 0.1% and for a good period it was negative all the way. At best you can call it stangnant since the 08 crash. ie Getting poorer at best no richer.

    During the times of 8% interest and 15% inflation you were seeing real earning growth of about 2-3%. So whilst things where getting more and more expensive you wher earning more than the increases. Getting richer at worst no poorer.

    On that basis youd be daft to prefer low interest rates and inflation?
    Last edited by spadoosh; 15-05-2018 at 4:41 PM.
    Don't be angry!
    • jimjames
    • By jimjames 15th May 18, 5:19 PM
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    jimjames
    On a similar note, historically stock market investments paid lower income than bank deposits as you had more likelihood that you'd get capital growth and higher income in future.

    When that changed and bank rates dropped some people said it would never last and dividends would have to drop. In the last 10 years that still hasn't happened and anyone who invested has also had some very tidy capital gains. You can still get over 3% income compared to the pittance from cash so it still makes me wonder why many people who want a higher level of income still don't try it.
    Remember the saying: if it looks too good to be true it almost certainly is.
    • Prism
    • By Prism 15th May 18, 5:23 PM
    • 405 Posts
    • 315 Thanks
    Prism
    On that basis youd be daft to prefer low interest rates and inflation?
    Originally posted by spadoosh
    Unless you have been making a killing on the stock market due exactly that perfect equities environment. Of course that doesn't help much with day to day living.
    • ProDave
    • By ProDave 15th May 18, 5:28 PM
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    ProDave
    When I had my first mortgage in the 80's I remember I started paying more than half my take home pay to pay the mortgage. I had kittens the day interest rates spiked to 15%

    But the advantage then was wages generally kept up with inflation, so after 3 years, my pay had gone up 30% but the mortgage stayed much the same and I could finally start actually living rather than existing.

    Today you take out a mortgage and you are stuck with that payment with little inflation mechanism to reduce it.
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