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Well, it finally happened. After 11.5 years of cuts, the Reserve Bank of Australia (RBA) raised the national exchange rate at its meeting in early May 2022. With the RBA attempting to rein in inflation which recently hit highs not seen since the 1990s, it is likely that further increases in cash rates could occur over the next 12 months.
So what does this mean for Australian borrowers and savers?
What is the cash rate and why is it rising so high?
The national cash rate is the interest rate that banks and other lenders charge each other for overnight cash loans, which they use to access the cash needed to provide financial products and services, including loans.
The cash rate is one of many factors that affect interest rates. When the cash rate is low (as it has been for several years), borrowers pay less interest on loans (including mortgages and car loans) while savers earn less interest on their assets (savings accounts and term deposits).
With the RBA finally raising the cash rate, borrowers may soon have to start budgeting for higher loan repayments as banks and lenders begin to pass on cash rate changes. Australian savers can also expect to start earning more interest on their savings in the future.
Australian mortgage holders may soon start to feel the pain as banks begin to raise their variable interest rates on home loans. With many Australians having already stretched their finances to take out larger home loans to afford higher house prices, this could put many borrowers at risk of mortgage stress.
Fixed rate mortgage holders may not be completely off the hook either. While a fixed rate can keep your repayments consistent for easier budgeting, your mortgage will automatically revert to a variable rate at the end of the fixed term. And if variable rates experience multiple increases during your fixed tenure, you could risk incurring an astronomical bill when you return.
Borrowers with equity available in their home may be able to refinance with a bank or mortgage lender that offers a more affordable interest rate if they believe they might be at risk for mortgage stress. . Keep in mind that fixed-rate borrowers may incur high break-up fees if they refinance during their fixed-rate term.
Some of the best home loans for refinancing include:
Pacific Mortgage Group Standard Variable Home Loan (Principal and Interest) (LVR 60%-70%) – Interest rate 1.87% pa Variable, comparison rate 1.87% pa
Freedom Lend Freedom Variable Home Loan (Principal and Interest) (LVR
Homestar Finance Star Gold Home Loan (Principal and Interest) (LVR
Bank Of Sydney Expect More Inv Loan Package No Package Fee Lvr 70 – Interest Rate 1.94% per annum, Variable, Comparison Rate 1.96% per annum
G&C Mutual Bank Momentum Home Loan (LVR
If you currently have a car loan, the rise in the RBA cash rate may only affect your repayments if you are paying a variable interest rate. But if you’re shopping for cars and looking for a car loan, variable and fixed rates could potentially start to rise after the RBA’s decision. This means you may have to budget for higher interest charges as well as the higher cost of new and used cars, due to the car shortage.
Some of the best used car loans include:
loans.com.au Used car loan (
Police Credit Union Low Rate Car Loan – Interest Rate 3.99% per annum Variable, Comparison Rate 4.25% per annum
Australian Military Bank car loan – Interest rate from 3.99% pa variable, compare rate 4.86% pa
People’s Choice Discounted Personal Loan (car loan) – Fixed interest rate of 4.65% per annum, comparison rate of 4.99% per annum
Beyond Bank Low Rate Car Loan Special Offer – Interest Rate 4.69% per annum Fixed, Comparison Rate 5.01% per annum
Savings accounts and term deposits
You may not have heard much about the world of savings accounts and time deposits in recent years, because for much of that time, just not much happened. . With low interest rates, it has not been easy for Australians to grow their wealth by putting their money in a savings account or term deposit to earn interest, leading many to consider other investments, from stocks to crypto.
However, interest rates on savings accounts and term deposits could also rise as banks pass on higher RBA cash rates, with a few lenders already announcing rate hikes. This could help make keeping money in the bank to earn interest a more viable strategy for building wealth over time.
Some of the best regular savings accounts include:
AMP Bank AMP Savings Account – Maximum Rate 1.35% per annum, Base Rate 0.10% per annum
ING Savings Maximiser – Maximum rate 1.35%% pa, Base rate 0.05% pa
86,400 Save Account – Maximum Rate 1.20%% pa, Base Rate 0.10% pa
Move Bank Growth Savings Account – Maximum rate 1.10% per annum, base rate 0.10% per annum
UBank USave with USpend, maximum rate 1.05%% pa, base rate 0.05% pa
Some of the best term deposits include:
Judo Bank Personal Term Deposit (at maturity) – 4.05% for 60 months
AMP Bank Term Deposit – 3.75% for 48 months
Macquarie Bank Term Deposit – 3.35% for 36 months
Firstmac Term Deposit – 2.50% for 24 months
G&C Mutual Bank Term Deposit – 2.00% for 12 months
If you want to learn more about what’s going on in the world of interest rates and cash rates, check out our explainer on what it can mean for you here.