07 Aug The RBA has left the cash rate unchanged for now, but what do changes mean for other areas of your finance?
Whenever the Reserve Bank of Australia (RBA) changes the official cash rate all we all hear about is how it will impact home loans. The cash rate and it’s movements affect many other areas of finance and the economy. Read on to find out more.
Every month, except January, the RBA board meets to decide on the most appropriate monetary policy to support Australia’s economic environment. The RBA takes into account the strength of the economy, the housing market, the performance of the Aussie Dollar and Consumer confidence.
Yesterday, the RBA announced it has left the cash rate unchanged at 1.00%. The RBA statement suggests an extended period of low interest rates will support progress in reducing unemployment and achieve more assured progress towards the inflation target.
Overall, the RBA believes the global economy remains reasonable while noting increased uncertainty generated by trade and tech disputes is affecting investment and the risks to the global economy remain tilted to the downside.
Whenever there is a change in rate, either up or down, the talk through the press is all about what it will mean for mortgage-holders. But the cash rate has a flow-on effect for many other areas of daily finance. If anything, a cash rate change is the perfect catalyst to review your financial situation as a whole.
How does a rate change affect your savings?
If you’ve got a large chunk of your money in a bank savings account and you’re trying to save for a first home deposit, a holiday, or for one of those just in case events, rate cuts probably aren’t the best news for you.
A cut in the official cash rate will likely mean a reduction in the rate and amount of interest you earn on your savings.
If you are worried interest rates are going to be cut further, and you want to lock in a rate for a particular length in time, a term deposit account might be an option worth investigating.
An increase in the cash rate, however, is a positive thing for your savings as banks move to increase the interest rate available for savings accounts.
All the other loans that aren’t home loans
Changes to the cash rate affect interest rates on all kinds of loans, including commercial and business loans, asset and equipment finance, investment loans.
Car finance, asset and equipment finance
If the RBA cuts the official cash rate, interest rates on car loans, and asset and equipment finance generally go down too.
If you have already taken out one of these types of loan, unfortunately it will likely have a fixed interest rate for the period of your loan term.
The good news is that interest rates are at an all-time low. If you’re thinking about buying a new car or refinancing an existing car loan, now’s the time. Looking to purchase equipment for your business? Now might be the time to lock a beneficial rate in before the inevitable rate rise. It’s also worth checking with your employer to see what automobile benefits are available to you as part of your salary package.
Yep, the official cash rate generally has an effect on the interest rate on credit cards too.
Interest rate reductions are meant to encourage people to spend more – including on plastic. This in turn gives the economy a boost (stimulate the economy).
A rate increase is designed in part to slow the rate of borrowing and spending. This encourages people to reduce their amount of debt and boost their savings.
If you’re someone who has been guilty of spending a little too much on your credit card, however, get in touch – we can help you look into consolidating it with other debts that are ripe for refinancing now.
Generally bank business loans attract a slightly higher rate than regular home loans. They are, however, just as susceptible to rate increases and decreases. It can be well worth looking into alternative funding for your funding requirements. Alternative funding offers fixed rates of interest for the period of the loan. You can check out more information on these types of loans here.
We find people believe a personal loan is the only option to consolidate their short-term debts into “one easy to manage solution”. How often have you heard that line? An unsecured personal loan can top upwards of 16%. Craziness. There isn’t often a lot of movement in these rates when the RBA makes an adjustment down. If you are wanting to refinance your outstanding debts, our sister company Apis Financial can assist.
Get in touch
Basically, it comes down to this: if you have an existing or prospective debt and you want to see how it all stacks up then get in touch.
We’re following the market closely. We know which lenders are passing on rate cuts to their customers, and which lenders aren’t.
Our Facebook page has regular market updates and interesting information about property in Australia, Follow us here.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal. Nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.