Savers gift from RBA in time for Christmas

Aussie savers benefit from Reserve Bank of Australia’s December announcement.

In December 2013, the Reserve Bank of Australia kept the cash rate the same after the previous downward trend.

Data from finder.com.au estimated that 6.4 million households will have more money available as they don’t have a mortgage and rely on higher interest rates welcomed the pause, leaving them with extra cash in the bank for Christmas.

The cash rate decision could well see an end to the spiralling downward movement and could certainly bring back the smile on the face of savers. Our reliable team of economists is generally in agreement that we may see rates go up in 2014, the first time since 2011. Returns on savings have dropped by up to 2.3 percent since the cash rate decline.

It’s all about interest rates

On average, a high interest savings account in December 2013 had a rate of 3.48 percent and up to 4.50 percent. Over the past two years, finder.com.au calculated that the average saver has lost out on $300 from interest on savings of $20,000 in the bank.

Savers have fared better compared to borrowers, who have missed out on 0.53 percentage points of the Reserve Bank's 2.25 percentage point cuts since November 2011. Compared to variable home loans, all standard variable rates in the finder.com.au. database during this period have fallen by an average of 1.72 percentage points, whereas savers were lucky to have seen their rates drop on average by 0.69 percentage points instead of the cash rate's full 2.25 percentage points.

All but one standard variable home loan dropped by more than the Reserve Bank's 2.25 percentage points, while the rest kept up to 1.45 percentage points from borrowers. Borrowers with a typical $300,000 home loan with an average rate of 5.6 percent are paying about $339 less in monthly repayments since rates began to fall.

Even though borrowers did not win out in this last cash rate decision, there is no need to despair as there are a large number of good home loan deals available and by using comparison tools you can find for yourself something you can afford.

There is no need to panic at the thought of the possibility of interest rates rising as at the moment they are still considerably lower than 2 years ago. In fact, they are 1.23 percent on average lower throughout the four main Australian banks.

A fixed rate suits some borrowers

Some borrowers may choose to fix their mortgage rate. December 2013 was good time to do it as the fixed rate would’ve remained for the agreed term and may have ended up lower than the variable rate in the longer term if interest rates do rise.

Remember that despite what the RBA decides, always compare your options before committing to any financial product. This will ensure that you get the best deal for your personal and financial situation.

Michelle Hutchison

Michelle is Money Expert at finder.com.au. She's the go to for information, tips or trends in the home loan market or with credit cards, savings accounts and personal loans. You can ask her about shopping deals and life or travel insurance too.

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