The RBA and the official cash rate
The Reserve Bank of Australia is the body who sets the official cash rate, which is the standard against which banks set their own interest rates.
The RBA meets on the first Tuesday of every month and discusses the state of the national economy, including things like consumer confidence, inflation, economic growth and employment levels. Based on these factors, the official cash rate either decreases, increases or stays the same.
This system is designed so that higher rates will discourage borrowing and spending, therefore lowering inflation. Lower rates do the opposite, increasing Australians’ ability to borrow and spend money, boosting the economy.
For the most recent information on the RBA cash rate, read our monthly reserve bank interest rate summary.
What influences Australian interest rates?
Official interest rates, also referred to as the cash rate, are set by the Reserve Bank of Australia (RBA), which is the country’s central bank and primary decision-maker when it comes to monetary policy. The RBA meets on the first Tuesday of every month to discuss the state of the national economy, including things like consumer confidence, inflation, economic growth and rates of employment.
Based on these factors (and more), the official cash rate is either decreased, increased or left unchanged. The idea is that low interest rates will help boost the economy by encouraging Australians to spend, borrow and invest. Meanwhile, high interest rates will help rein in inflation by encouraging Australians to save their money instead.
Types of interest rates
- A fixed interest rate means that the interest on your loan or savings is locked in at a certain value, and isn’t affected by rises or falls in the market. This can be both a blessing and a curse, but if you like a sense of certainty with your finances, a fixed interest rate might be for you. A fixed interest rate makes budgeting easier, because you’ll know what the amount will be each month, whether it’s a repayment or extra money in your account.
- Variable interest rates are more flexible, and shift with the market. They are also based on the RBA’s official cash rate, but unlike a fixed interest rate, they don’t lock in at any time. So if your loan or savings are working on a variable interest rate, the amount of interest you pay or earn can change day-to-day.
What to look for when you’re borrowing
Are you buying a new home, setting up a business or searching for a new car? Then you’re probably looking for a loan to help kick things off.
It’s important to do some research before you go ahead and choose a lender, because the current interest rate will not only affect your monthly repayments, but how much you’ll have paid by the time your loan term reaches its end.
The goal is to secure a low interest rate on your loan to minimise the amount of interest you’ll need to pay, but that isn’t all you need to consider. Fees, charges, penalties and extra features are all things you need to take into account when choosing the best loan.
It might seem like a hard task, but it’s made easier by using the comparison rate. This is a rate that providers are required by the National Credit Code to show, and it factors in interest, fees and charges for a clearer picture of the real cost of a loan. That’s why when you’re comparing products on Mozo, whether it’s home loans, car loans or personal loans, you’ll see an interest rate and a comparison interest rate.
Handy right? But there is one thing to keep in mind when using the comparison rate — it is a guide based on a specified loan amount and time frame (which is shown on Mozo’s comparison pages). Different loans will mean different comparison rates, so to find out exactly what you’ll be paying in interest, be sure to talk to your lender.
What to look for when you’re saving
The best place to keep your savings will depend on your goals. If you’re saving for a short term goal, a savings account with a high introductory interest rate might be just the boost your savings stash needs. Or, if you’ve got a decent chunk of funds but don’t need to access them, a term deposit might be a better space to park it for a while.
No matter how long you’re putting your savings away, the goal is to get a high return on your money, which means securing a high interest rate.
You should also consider special promotions like introductory interest rates or bonus interest rates, and be wary of account or transaction fees. Things like savings accounts or term deposits don’t show a comparison rate to keep track of these extra considerations, but here at Mozo, we’ll show them to you on our comparison pages.