How does the RBA rate cut impact me?

By now, you’ve probably heard that the Australian cash rate has hit an all-time low after the Reserve Bank of Australia brought it down to 0.10% on the 3rd of November 2020. You might be wondering how this could impact you.

When the RBA increases or decreases the Australian cash rate banks and lenders might choose to change the interest rates on mortgages, savings accounts and other banking products accordingly. 

For example, Athena Home Loans has a strong reputation for passing on full rate cuts to its customers. However other lenders aren’t always so generous.

So, how the November RBA rate cut affects you ultimately depends on your own individual financial circumstances.

That said, here’s a brief overview of how the RBA rate cut might impact you based on a handful of different scenarios:

How does the RBA rate cut impact my home loan?

  • Variable-rate home loans: Good news! If you have a variable rate home loan then there’s a chance that your interest rate could drop if your bank chooses to pass on the cut - which means lower repayments!
  • Fixed-rate home loans: On the other hand, if you have a fixed rate home loan then your interest rate, and thus your regular repayment amount, will stay the same for the life of your loan.

Potential savings: 

Here’s an example of how much money the RBA rate cut could potentially save on your home loan:

Say if you had a $400,000 principal and interest home loan with a 30-year loan term and a 2.44% variable interest rate. Using our free home loan repayment calculator we found that your monthly repayments would be $1,568 and you’d pay $164,492 total interest over the life of your loan.

If your lender passed on the full RBA rate cut from the 3rd of November, however, then your home loan interest rate would change to 2.29%, making your:

  • Monthly repayments: $1,538
  • Total interest paid: $153,377

Which means you’d save:

  • $30 per month
  • $360 a year
  • $11,115 over the life of your loan term.

How does the RBA rate cut impact my savings account?

  • Savings accounts: There’s a good chance that your bank will drop the interest rate on your savings account, meaning you’ll earn less interest on your account balance. This is up to the discretion of your bank though, so if you’re lucky, your interest rate won’t change.

How does the RBA rate cut impact term deposits?

  • Current term deposits: If you’ve locked your money away in a term deposit account prior to the RBA rate cut then lucky for you, your interest rate will remain the same.
  • New term deposits: Most banks cut term deposit rates following RBA rate cuts. So, if you’ve decided to open a term deposit account after the RBA dropped the cash rate - then you might’ve missed the boat on a more competitive deal. Alternatively, you might opt to stash your cash in a high-interest savings account instead - otherwise, be sure to shop around and compare term deposits until you find one you’re happy with.

How does the RBA rate cut impact personal loans?

  • Variable-rate personal loans: If you have a variable rate personal loan then your lender might choose to lower the rate on your personal loan, meaning your personal loan repayments will decrease too.
  • Fixed-rate home loans: Got a fixed rate personal loan? Then regardless of whether the RBA cash rate increases or decreases, your personal loan interest rate (and regular repayments) will stay the same.

How does the RBA rate cut impact credit cards?

Generally speaking, most banks and credit card providers don’t base or adjust credit card interest rates according to RBA cash rate changes. So it’s unlikely that your credit card interest rate will change as a result of the November 2020 RBA cash rate drop.

Head over to our interest rates page to keep up to date with all the latest cash rate changes and other news about the Reserve Bank of Australia.