After years of rising rates, 2025 has turned the tide as interest rates are finally coming down. That’s welcome news if you’re paying off a mortgage or loan, but less so if you’re relying on savings to grow. Here, Simone Bilton Associate Investment Director at Rathbones explores what it can mean for you, and how to make the most of it.
Interest rates are one of the main tools central banks utilise to manage inflation and steer the economy. After a period of rising rates to help bring inflation under control, we’re now starting to see interest rates come down in 2025.[1] This shift can have a big impact on your savings, investments, and borrowing costs, so it’s important to understand what it could mean for you and your money.
The Savings Squeeze
Lower interest rates can mean lower returns on savings accounts and fixed-term deposits. This can be disappointing, especially for those who depend on interest income from cash savings. But beyond smaller returns, there’s a bigger issue… inflation. If the interest you earn doesn’t keep pace with rising prices, the real value of your money can slowly erode.
In other words, your savings may grow on paper, but they might buy you less in the future. That’s why, in a low-rate environment, it’s worth rethinking how much of your overall assets are dedicated to cash. While it’s important to keep a buffer for short-term needs, cash may not help you grow your wealth over the long term.
Bonds: A Bittersweet Shift
When interest rates fall, bonds can offer a mixed experience for investors. On the one hand, existing bonds with higher fixed interest payments often become more valuable, as they offer better returns than newly issued ones. This can lead to capital gains, which may benefit your portfolio.
On the other hand, reinvesting into new bonds during a reducing-rate environment typically means accepting lower yields. For those who rely on bonds for regular income, such as retirees or income-focused investors, this shift can reduce the reliability of bonds as an income source.
It may be a good time to review your bond strategy with a focus on balancing capital preservation with income needs.
Stocks on the Rise?
Equity markets can often respond well to falling interest rates. Cheaper borrowing costs might boost company profits, and consumers may spend more if their financing costs go down, which in turn supports business revenues. As a result, share prices in many sectors may benefit.
However, the impact isn’t always equal across the board. Some industries, like technology or consumer goods, might thrive, while others, such as financial institutions, could see tighter margins. For individual investors, this is a reminder that diversification and active management matter. Understanding which types of investments are positioned to benefit (and which may not) could help you make smarter investment choices in this environment.
Planning Ahead
Falling interest rates are reshaping the financial landscape, and that calls for a fresh look at how your money is working for you. Whether you’re saving for retirement, building income, or aiming for long-term growth, it’s worth reassessing your strategy. Holding too much in cash may no longer be as rewarding, and traditional income sources could offer less than they once did. However, it’s important to remember that when you invest your capital is at risk and you could lose some or all of your investment.
But change also brings opportunity. With thoughtful planning and a clear view of your financial goals, you can adapt with confidence. At Rathbones, our Investment Management services are designed to help you make informed decisions — from rebalancing your portfolio to building a more resilient income strategy — all tailored to your individual needs.
The views and opinions expressed in this article are those of the individual and do not necessarily reflect the views of Rathbones Group Plc.
[1] House of Commons Library, 2025 – https://commonslibrary.parliament.uk/research-briefings/sn02802/
