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The days of double digit interest rates – as seen in the early 90s – are unlikely to return any time soon

2 min read

Interest rates are now unlikely to rise until much later this year. And even if they do go up they will stay low – the double digit rates of the early 90s are far behind us.

This means that, while keeping your cash in a bank account is low risk, investing could be better for growing your wealth over the long term.

We believe ‘real’ interest rates – those experienced in day-to-day life, calculated by subtracting inflation from the interest you get from your bank account – could remain negative for some time.

Following the Bank of England’s (BoE) decision to keep interest rates at 0.5% last week, markets now don’t expect them to rise until towards the end of this year, at the earliest. A “temporary soft patch” in the economy was the reason for its decision to stick – but the BoE said it still expected the economy to bounce back after being battered by the ‘Beast from the East’ in March.

Even if rates rise, we believe they will do so in stages and remain low – it is currently just 0.5%. Inflation, meanwhile, is currently far higher at 2.5%. While we believe it will steadily keep falling to the BoE’s 2% target, it is likely to remain higher than interest rates.

The vastly different days of the early 90s, when rates reached 15%, are long gone and so are the kinds of return people received from their bank accounts back then. Today, if you keep your cash in a bank account, its growth in value is not going to keep up with rising prices.

Alan Higgins, Managing Director, Coutts, said: “Four is the new 15 – which we last saw in 1990. The high interest rates we saw almost 30 years ago came at a time before the financial crisis, a time of boom and bust.

“In today’s more cautious, lower inflation, highly regulated economic environment, 4% would be considered extremely high. You can never say never of course, but we are highly unlikely to see rates enter double digits again for decades.”


“The vastly different days of the early 90s, when rates reached 15%, are long gone and so are the kinds of return people received from their bank accounts back then.”

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Cash points

Cash deposits clearly have their own benefits. They are reasonably secure – avoiding the potential risks that can come from investing – and easy to access.

But research reveals that:

  • Over the 10 years to the end of 2016, UK cash returns after inflation were negative and lagged both equities and government bonds
  • For those who kept hold of their cash, their money lost its value
  • Cash returns were more positive over 20 and 30 years but still much reduced

The numbers show that, if you held £100,000 as a cash deposit over that decade, you would have lost £10,000 in spending power – that’s roughly the cost of a first class flight to Australia.

Investing, on the other hand, can keep the value of your wealth above inflation. And as the latest performance data for Coutts show, an experienced investment house can preserve that value even through more challenging periods for markets.

There are, of course, risks involved in investing. Past performance can never be taken as a guide to future performance and you may not recover the original amount you put in.

But if you’re thinking long-term – either for yourself or the next generation of your family – there is in our view a compelling case for the benefits of investing your money over keeping it as cash.

Find out more about investment services at Coutts and how we can help you and your family plan for the future.

Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

About Coutts Investments

With unstinting focus on client objectives and capital preservation, Coutts Investments provide high-touch investment expertise that centres on diversified solutions and a service-led approach to portfolio management. Our investment process is as disciplined as it is creative – ensuring tailored solutions with robust results.

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