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There’s been a lot of movement in interest rates over the past month, so I thought this would help give people a little bit more understanding of how it works and where they should be sitting at the moment.
So, first off, the RBA (Reserve Bank of Australia) they meet on the first Tuesday of every month. And at that meeting, one of the things they decide on is what they’re going to do with the cash rate. So the third of March this year, they decided to reduce the cash rate from 0.75% to 0.5%. This was the RBA seeing what was happening with the coronavirus overseas and predicting that there’s going to be a flow on effect to us here in Australia.
So, it was them pulling a lever to hopefully give Australians a little bit more cash flow heading into what we currently face ourselves with. On last week, on the 19th of March the RBA made an emergency cut, taking the cash rate from 0.5% to 0.25%.
Now, what does that mean for you as a consumer? The RBA reducing the cash rate doesn’t necessarily mean that the banks are going to cut their interest rates to the same effect. So off the back of the cut on the 3rd of March, I’m happy to say that the majority of lenders did pass on that full 0.25% to their clients for variable interest rates where the emergency cut last week has had very little effect on the variable rates that banks are offering.
It has had a big impact on fixed rate though. Now, I need to be clear, it doesn’t mean that if you’re in a fixed rate at the moment, that doesn’t mean that your fixed rate is going to reduce. It means that if you were to enter a fixed rate contract, as of now, you’d be getting much cheaper rates than what you would have got a week ago. So to give you some idea, variable rates at the moment, if you’re in the high twos, say around 2.6% to 3%, you’re definitely in the ballpark of what is competitive. Fixed rates are now, there’s fixed rates on offer in the low twos. So there’s a significant difference between the variable and the fixed. Now, there’s a lot more to consider when fixing, than just the interest rate at the time. And I am more than happy to talk you through that over the phone. So please, if you want to continue this discussion further, follow the link. Book in a time to chat, and hopefully I can give you some more clarity.