On July 5, 2022, The RBA raised the Australian cash rate by 0.50 percent for the second month running, taking the cash rate to 1.35 percent. For the first time since 2010, the RBA went back-to-back-to-back, raising the cash rate three times in just over two months between May and July 2022 from its record low level of 0.10 percent.
The rate rises, the size of the increases and the three in a row indicate that the RBA is concerned about inflation. But with the RBA rate rises comes the reality that you may find yourself with less money in your pocket at the end of each month than you had before, particularly if you are paying off a mortgage or a loan. With this in mind, what can you expect from here, and what can you do to help lessen the impact?
If you have a mortgage, shop around
In typical fashion, the major banks and lenders passed on the full 0.50 percent rate increase almost immediately after the RBA increased the cash rate in July.
If you have a mortgage and are using a variable rate, for every half a percent increase on a million-dollar mortgage, it adds approximately $400 per month to the interest repayment.
This can make it even more important to shop around and ensure you are on the best home loan rate available to you. Raiz Home Ownership can help find competitive rates when buying or refinancing a property.
For those that locked in a fixed rate, you have spared yourself from the rate rise until your mortgage reverts from a fixed rate back to a variable rate.
Businesses will likely feel the pinch of higher rates
Businesses may attempt to absorb these higher interest costs and import good costs. The business may also try to pass these along to the consumer in the form of:
- Higher prices.
- A tiered service pricing, where the basic product is one price and the deluxe is higher.
- Shrinkflation, where they offer less of the same product or service for the same price.
It now costs more for the Australian Government to borrow
The near trillion-dollar debt current held by the Australian Federal Government is set to get more expensive to repay, with every 0.50% increase set to cost the Government approximately $5 billion more per year. The thing about Government debt is that it is really the debt of all Australians, aimed to be repaid over time primarily using tax revenue. This means if rates continue to rise, the Government may also likely look to either cut its spending or may try and get its hands on some additional taxes.
What can you do to help curb the effect of rising interest rates?
Here are some things you can do to try and limit the effect interest rises have on your day-to-day expenses:
- Know what your interest rates are for all your debt products, including credit cards, car loans, home loans and business loans if you run your own business. Find out what competitors are charging. You may find you can save money by switching products.
- Contact your lender to discuss your options and speak to other lenders. Raiz Home ownership can help with buying or refinancing a home, so it may be worth a comparison to see if they can get you onto a better rate.
- Make or update a personal budget to determine where you can spend less or save more. Expect to factor in some more rate rises in 2022, as that is what the financial market is currently predicting. Remember rates are rising because of inflation, which will cause cost of living to go up.
- Take advantage of cashback opportunities in your everyday spending. Raiz Rewards can help with this and a paid Raiz survey a day can’t hurt either. Raiz Rewards even has cashback incentives with up to $112 invested when you switch your energy, or $56 invested to switch your broadband (accurate July 2022).
Even small steps can help when faced with rate rises
Breaking it down into small bits can help to alleviate the sting of the increase in cost of living. If you are facing costs, small steps like shopping around or bringing your lunch to work every now and then can help to absorb some everyday costs. Every bit counts!
To see Raiz fees, click here.
To see if Raiz is suitable for you, please read the PDS.
Don’t have the Raiz App?
Download it for free in the App store or the Webapp below:
Important Information
If you have read all or any part of our email, website, or communication then you need to know that this is factual information and general advice only. This means it does not consider any person’s particular financial objectives, financial situation, or financial needs. If you are an investor, you should consult a licensed adviser before acting on any information to fully understand the benefits and risk associated with the product. This is your call but that is what you should do.
You may be surprised to learn that RAIZ Invest Australia Limited (ABN 26 604 402 815) (Raiz), an authorised representative AFSL 434776 prepared this information.
We are not allowed, and have not prepared this information to offer financial product advice or a recommendation in relation to any investments or securities. If we did give you personal advice, which we did not, then the use of the Raiz App would be a lot more expensive than the current pricing – sorry but true. You therefore should not rely on this information to make investment decisions, because it was not about you for once, and unfortunately, we cannot advise you on who or what you can rely on – again sorry.
A Product Disclosure Statement (PDS) for Raiz Invest and/or Raiz Invest Super is available on the Raiz Invest website and App. A person must read and consider the PDS before deciding whether, or not, to acquire and/or continue to hold interests in the financial product. We know and ASIC research shows that you probably won’t, but we want you to, and we encourage you to read the PDS so you know exactly what the product does, its risks and costs. If you don’t read the PDS, it’s a bit like flying blind. Probably not a good idea.
The risks and fees for investing are fully set out in the PDS and include the risks that would ordinarily apply to investing. You should note, as illustrated by the global financial crisis of 2008, that sometimes not even professionals in the financial services sector understand the ordinary risks of investing – because by their nature many risks are unknown – but you still need to give it a go and try to understand the risks set out in the PDS.
Any returns shown or implied are not forecasts and are not reliable guides or predictors of future performance. Those of you who cannot afford financial advice may be considering ignoring this statement, but please don’t, it is so true.
Under no circumstance is the information to be used by, or presented to, a person for the purposes of deciding about investing in Raiz Invest or Raiz Invest Super.
This information may be based on assumptions or market conditions which change without notice and have not been independently verified. Basically, this says nothing stays the same for long in financial markets (or even in life for that matter) and we are sorry. We try, but we can’t promise that the information is accurate, or stays accurate.
Any opinions or information expressed are subject to change without notice; that’s just the way we roll.
The bundll and superbundll products are provided by FlexiCards Australia Pty Ltd ABN 31 099 651 877 Australian credit licence number 247415. Bundll, snooze and superbundll are trademarks of Flexirent Capital Pty Ltd, a subsidiary of FlexiGroup Limited. Lots of names, which basically you aren’t allowed to reproduce without their permission and we need to include here.
Mastercard is a registered trademark and the circles design is a trademark of Mastercard International Incorporated.
Home loans are subject to approval from the lending institution and Raiz Home Ownership makes no warranties as to the success of an application until all relevant information has been provided.
Raiz Home Ownership Pty Ltd (ABN 14 645 876 937), an Australian Credit Representative number 528594 under Australian Credit Licence number 387025. Raiz Home Ownership Pty Ltd is 100% owned by Raiz Invest Australia Limited (ABN 26 604 402 815).
