The 629-Year Decline in Interest Rates

Arthur Stein |

Interest rates are low. In fact, with a few brief exceptions, interest rates have declined significantly over the last 629-years.  

Source: Visual

The major exception is 1979-1985 when interest rates increased to over 10% as inflation increased.  

What is the significance of declining interest rates? It’s not as if you took out a mortgage in the year 1402 and now realize that you need to refinance. Declining interest rates are significant because of increasing prices, also called inflation.

Here is an interest rate example over a shorter time period: Ten-year U.S. Treasury Bonds.

The interest rate for ten-year U.S. Treasury bonds was 2.8% at the beginning of 1954, increased to 15.3% on September 1, 1981 and then fell to lows of 1.5% in July of 2012 and 2016. The rate was 1.7% at the end of September 2019, a 39% decline over the 65-year period illustrated above and a much greater decline since the 1981 peak.  

The difficulty for consumers has been the increase in prices (the Consumer Price Index) while interest rates declined.


When prices increase but interest rates do not, the purchasing power of interest declines. And those declines are for interest from bonds, bank accounts and CDs. Another problem is that taxes on interest are higher than on capital gains and dividends in taxable accounts.

Bonds, bank accounts and CDs have many advantages. But long-term investors pay a cost – loss of interest rate purchasing power and higher taxes (in the U.S.).