How did cash perform in developed countries since 1694


  • Retrieved short-term interest rates in developed countries since 1694
  • Display how cash would have earned historically assuming short-term interest rates were deposit rates

Short-term interest rates

Generally speaking short-term interest rates mean interest rates whose borrowing term is shorter than 1 year. In this article I used 3-month LIBOR rates as short-term rates unless mentioned otherwise. Prior to LIBOR I extrapolated by using T-bill rates, central bank policy rates etc. (Price sources are listed below.)

I assume in this post that short-term interest rates are the rates investors would have got as deposit rates. Of course LIBOR is estimated borrowing rates and therefore it is not guaranteed that investors could get those returns. (Technically speaking LIBID should be used rather than LIBOR since it is offered rates.) From retail investors point of view, they would get much lower returns due to fees etc.

Why bother looking at cash rates?

It is important to see how cash performed when thinking about other asset classes. For example suppose you earned 10% by investing equities. It is not meaningful if cash rates were also 10% because in that situation you would be better off to deposit cash to the bank and you could get 10% without any risk. (Assuming the bank is risk-free.)

In a nutshell, excess returns over cash are the measure you should look when evaluating the performance of investments.

Historical short-term rates

Here I display rates in US, Europe (and Germany), Japan and UK.

Since 1694

UK has the longest historical data among these countries and it starts from 1694 when BOE was established.
You can see that:

  • Rates are evolving around 5% in the very long run
  • After WWI, interest rates in Germany soured as they experienced hyperinflation in 1920s. Effectively Deutsche Mark became worthless at that time. (The graph is trimmed for easier comparison.)
  • During WWII, US kept the interest rates low and stayed lowest among these countries
  • Inflation picked up since 1960s and CBs jacked up the rates to normalise it. Interest rates peaked in 1980s
  • Rates are in the historical low range after the financial crisis in 2008

Since 1900

This is the same data as above but since 1900.
In Japan, it has been in the lowest range for nearly 20 years after the collapse of the bubble and Asian crisis in 1997.

Historical performance

Here I display historical performance of cash using above interest rates. Data in US starts since 1914 and it is flat prior to the inception.
One can see that cash performed relatively well during 60s thanks to the high interest rates especially in the US and the UK. This suggests that T-bill is actually a good way to hedge inflation as Ang[1] says.

The surge in 1920s in Germany is again due to the hyperinflation. So effectively cash performance became zero at that moment.

Overall the wealth curve is very smooth because this is risk-free (ignoring sovereign risk and credit risk). And this should be the base performance to compare to when dealing with investment strategies in other asset classes.

Price source


EU (Germany)




Andrew Ang: Asset Management: A Systematic Approach to Factor Investing (Financial Management Association Survey and Synthesis)