It wasn’t that long ago that interest rates were barely a blip, close to zero and easy to ignore.
Fast-forward to 2025 and the picture looks very different. Rates are now meaningfully higher, and although the Bank of England recently trimmed the base rate to 4.25%, it’s still a world apart from what we saw through the 2010s.
This shift has reshaped how investments behave, and if your portfolio hasn’t kept up, it might be time to take another look. Holding too much cash? Clinging to yesterday’s “winners”? In a high-interest world, doing nothing might cost more than you think.
Cash Isn’t the Cop-Out Anymore
For years, the phrase “cash is trash” was a common expression in investment circles. And rightly so, with interest rates under 1%, cash lost value against inflation year after year.
That’s changed.
Many savings accounts now offer 4-5% interest, sometimes higher with fixed-rate or money market products. For the first time in over a decade, keeping some of your wealth in cash isn’t just about liquidity or safety, it’s a viable way to earn a return.
But here’s the catch: not all cash is created equal.
If your money is languishing in a 1% account out of habit, it might be time to switch. Even a 2% boost on £50,000 is £1,000 a year – money you could be earning without taking any additional risk.
Bonds Have a New Role to Play
Bonds used to be the sleepy part of the portfolio, predictable, safe, and, if we’re honest, a little boring.
Today’s bond market is ripe with opportunity, especially for those seeking income.
UK gilts and investment-grade corporate bonds are currently yielding between 4.6% and 6%, depending on maturity and credit quality – a significant improvement on recent years.
With interest rates higher, newly issued bonds are offering attractive returns, sometimes rivalling dividend-paying shares, but with less volatility. Government bonds, corporate bonds and inflation-linked gilts each bring a different flavour to your financial cocktail, depending on your goals and time horizon.
One key concept to watch? Duration.
In simple terms, longer-dated bonds can be more sensitive to future rate changes. With rates now expected to plateau or gently fall over time, locking in income at today’s higher yields might be a smart move, but you’ll want to balance that with flexibility.
Winners and Losers Among Equities
Higher interest rates don’t just affect your savings, they ripple right through the stock market too. Companies that rely on borrowing (if you think property developers, tech firms, or start-ups) may feel a tight squeeze. As their costs go up and up, their earnings may fall, and valuations can take a walloping.
At the same time, dividend-paying stocks, banks and consumer staples can sometimes have a better chance. These are businesses with strong balance sheets, steady demand, and often, the ability to pass rising costs onto customers.
In other words, not all shares are created equal in a high-interest world. Some might lag, others might lead. The key is to understand what you hold and why.
Three Smart Portfolio Tweaks to Make This Year
If you’ve not reviewed your portfolio recently, here are three quick actions to consider:
1. Give Your Cash a Pay Rise
Are you still earning 0.4% or less? Review your accounts and consider switching to a better-paying option if necessary. Don’t leave easy returns on the table.
2. Revisit Your Income Strategy
Inflation has hovered around 3.5% in early 2025. With savings and bonds now yielding more than that, income-producing assets can help protect your purchasing power.
3. Rebalance for the Road Ahead
Growth had its moment during the cheap money era. Now, a more balanced mix of equities, bonds, and other income-generating assets may serve you better, especially if markets stay choppy.
These aren’t drastic changes. But they could make a noticeable difference over time.
Your Mid-Year Wealth Check-In
Markets move. Rates rise and fall. But too often, portfolios don’t keep up. That’s where many investors lose ground, not because they made a mistake, but because they didn’t make a move.
At Cedar House Financial, we specialise in helping clients adapt with confidence. Whether you’re seeking income, growth, or protection against inflation, a professional mid-year review can help ensure your portfolio is aligned with the current climate and your future goals.
📞 Call us on 020 8366 4400
📧 Or email enquiries@cedarhfs.co.uk to book your mid-year portfolio review.