RBA cash rate decrease

When the RBA cuts the cash rate then interest rates go down: that's good for home loans and bad for savings accounts.

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The Reserve Bank of Australia sets the official cash rate, which is the interest rate for overnight loans provided to banks. The cash rate has a big effect on your home loan and savings account interest rates. A decrease in the cash rate typically means:

  • Variable mortgage interest rates go down. This is good news if you have a home loan. A lower rate on your mortgage means your repayments get cheaper.
  • Savings account interest rates go down. This is bad news for savers. A lower interest rate means you earn less interest on the money in your bank account.

Read on to learn more about how rate cuts affect your financial situation and what you can do to get a better deal.

I have a mortgage: What does an RBA cash rate decrease mean for me?

There are several things to keep in mind:

  • Only variable rate mortgages are affected by the cash rate. If you're locked into a fixed rate loan, you'll have to wait until the fixed rate period ends before you can take advantage of lower rates.
  • Lenders are not obliged to pass on the RBA's cut. Some lenders pass the full cut on immediately, dropping their rates the day the Reserve Bank announces their decision. Others wait a while, and some may only pass on part of the cut.

Here's what you need to do

If the RBA cuts the cash rate and you have a variable mortgage, here's what you should do:

  1. Check the interest rate on your home loan. Is it competitive? Are better deals available?
  2. Check if your lender plans to pass on the rate cut.
  3. If not, ask your lender for a better deal anyway (it never hurts to ask).
  4. Regardless, start comparing rates on the market and look for a better deal.
  5. Once you've found a better rate apply for the new loan. There's some paperwork involved but once accepted your new lender will take care of the switching for you.

Potential savings from a cash rate cut

Let's use a real life example from June 2019. Say your mortgage had an interest rate of 3.59%, but then the RBA cut the cash rate on June 4. Your lender passed on the full cut, so your interest rate dropped to 3.34%.

How much does this save you? Well, assuming you're on a 30 year loan and you've borrowed $400,000, your monthly repayments would shrink from $1,816 to $1,760. That's a saving of $56 a month or $672 a year.

Compare current home loan offers

Rates last updated November 22nd, 2019
$
Loan purpose
Offset account
Loan type
Repayment type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
2.99%
3.01%
$500 (waived for loans above $150,000)
$0 p.a.
80%
Online only cashback offer: Refinancers borrowing $250,000 or more can get a $4,000 cashback for their first application (Other terms, conditions and exclusions apply). Buyers and refinancers can get this competitive variable interest rate. Application fee waived for loans above $150,000.

2.84%
2.84%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
3.03%
3.04%
$0
$0 p.a.
90%
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000.
2.88%
2.90%
$0
$0 p.a.
80%
Get one of the lowest variable interest rates on the market and pay 0 application or ongoing fees.
2.90%
2.92%
$0
$0 p.a.
80%
This loan offers a competitive variable rate and a 100% offset account to help save you on interest repayments.

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I have a savings account: What does an RBA cash rate decrease mean for me?

If you’ve got money tucked away earning interest in a savings account, an RBA cash rate decrease may not be the news you’ve been hoping for. A lower interest rate means you earn less interest.

Here's what you need to do

  • Start by checking if your lender is lowering your interest rate (they might not be).
  • Compare your interest rate to other rates on offer. There are still some accounts offering generous rates.
  • Consider if it's worth switching to a more competitive offer.

Term deposits

If your funds are locked away in a term deposit, you won’t feel the effect of the rate decrease until your deposit matures and you can access your funds. Of course, the fixed nature of a term deposit means you won’t be able to enjoy the benefits of any rate hikes should they occur.

Compare current savings account rates

Rates last updated November 22nd, 2019
$
$
months
Name Product Maximum Variable Rate p.a. Standard Variable Rate p.a. Bonus Interest p.a. Fees Min Bal / Min Deposit Interest Earned Product Description
UBank USaver
2019 Winner
UBank USaver
2.10%
1.04%
1.06%
$0
$0 / $0
Ongoing, variable 2.10% p.a. when you link your USaver account to a UBank Ultra transaction account and transfer at least $200 per month into either account. The linked transaction account has no monthly fees and no international fees. Bonus interest available on balances up to $200,000.
Rabobank Online Savings High Interest Savings Account
2.50%
1.05%
1.45%
$0
$0 / $0
Maximum variable rate of 2.50% p.a. for 4 months, reverting to a rate of 1.05% p.a. No deposit or withdrawal conditions. Available on balances below $250,000
MyState Bank Bonus Saver Account
2.00%
0.30%
1.70%
$0
$0 / $0
Ongoing, variable 2.00% p.a. when you deposit at least $20 into the account each month and make five or more Visa Debit card transactions from a linked MyState transaction account.
Suncorp Growth Saver Account
1.95%
0.20%
1.75%
$0
$0 / $0
Ongoing, variable 1.95% p.a. when you grow your balance by at least $200 (excluding interest) and make no more than one withdrawal in the month. Available on the entire balance.
Bankwest Hero Saver
1.85%
0.01%
1.84%
$0
$0 / $0
Ongoing, variable 1.85% p.a. rate when you deposit at least $200 each month and make no withdrawals. Available on balances up to $250,000.
ANZ Progress Saver
1.60%
0.01%
1.59%
$0
$10 / $10
Ongoing, variable 1.60% p.a. when you deposit $10+ each month and make no withdrawals. Available on the entire balance.
AMP Saver Account
2.36%
1.40%
0.96%
$0
$0 / $0
Introductory rate of 2.36% p.a. for 4 months, reverting to a rate of 1.40% p.a. The bonus rate offer is for new AMP Saver customers only, and applies to the first $250,000 deposited.

Compare up to 4 providers

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2 Responses

  1. Default Gravatar
    AnushaJanuary 13, 2016

    what is the impact of rate cut on shares.

    • Avatarfinder Customer Care
      ShirleyJanuary 14, 2016Staff

      Hi Anusha,

      Thanks for your question. Please note that finder.com.au is an online comparison and information service and can only provide general advice.

      If you’re looking for personalised advice, we recommend you speak to a stock broker or financial planner.

      Generally a rate cut signifies that the economy is moving slowly towards it’s trough in the economic cycle. As a result, the share market usually loses value until the market peaks again.

      Cheers,
      Shirley

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