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Australian interest rate history

Australian interest rate history is a broad downward trend since 1990, marked with some steady rises and sudden falls in moments of crisis.

Australian interest rate history is a great way to understand major moments in economic history, both local and global.

Broadly speaking, Australian interest rates fall in times of economic crisis, low inflation and high unemployment. Rates rise, sometimes very fast, when the economy is booming or inflation is surging.

Key statistics

  • The average bonus savings rate was just 0.3% in 2021. In 2023 it soared 400 basis points to 4.33%.
  • Soaring inflation and a rising cash rate have pushed the average bonus savings rate well above 4%.
  • Australian interest rates have fallen, with some periods of modest rises, more or less continuously since 1990. But since 2022 rates have risen again with incredible speed.

Historic savings rates over time

The major driver of interest rates is the official cash rate target set by the Reserve Bank of Australia (RBA).

When the cash rate falls, interest rates on home loans and savings accounts fall. This is good news for borrowers but bad news for savers earning interest in their savings accounts.

This graph shows the history of the official cash rate target since 2002 and the average bonus savings rate on Australian savings accounts.

While the two rates aren't identical, savings rates move up and down in a very close relationship to the official cash rate.

Historic savings account rates: the Big Four banks

The graph above shows the rise in savings account rates from the Big Four banks as interest rates have started to rise.

The pattern is clear: savings accounts rates have followed the movement of the cash rate. But the banks have been slow to pass on these rate rises (and often haven't passed them on in full to savers).

Historic home loan rates

The graph above shows the history of home loan rates. There was steady growth in the standard variable home loan rate from 1959 all the way until the 17% peak in 1990.

You can also see the rapid fall in home loan rates post-GFC and the soaring increases of 2023–23.

The line in red starts later as the data does not go back as far. This shows the discounted variable rates that are closer to what most borrowers can actually get on the market today.

Australian interest rates: a brief history

1990: the cash rate reaches 17.50%

The cash rate was 17.50% at the start of 1990. Rates had risen throughout the 1980s to combat soaring inflation.

With interest rates for borrowers so high, mortgage repayments became very expensive for Australian borrowers. However, the interest rate peak was short lived.

1993: interest rates stop falling

The cash rate fell rapidly from its January 1990 peak. And so too did interest rates for borrowers and savers. By December 1990 the cash rate was 12.0%.

By July 1993, as the economy was slowly recovering from recession the RBA lowered the cash rate to 4.75%.

Inflation was now "under control", according to then RBA governor Bernie Fraser, but there was not yet enough business investment "necessary to sustain a solid recovery."

The 2008 Global Financial Crisis

In the years that followed, the cash rate moved much less dramatically, never going lower than 4.25% or higher than 7.50%.

And then as the Global Financial Crisis shook the world in 2008, the RBA slashed the cash rate by an entire basis point in October.

A press release accompanying the decision noted drily that "Conditions in international financial markets took a significant turn for the worse in September."

In early 2009 the cash rate dropped to a then-record low of 3.00%.

2019/2020 Covid pandemic: rates hit rock bottom

Over the decade following the GFC the cash rate crept back to 4.75% in 2011 and then very gradually fell to 1.50%.

It stayed at 1.50% from September 2016 until May 2019.

While the RBA had already made modest cuts to the cash rate to stimulate the economy and increase employment, the economic effects of the Covid pandemic forced more drastic action.

By 2021 the cash rate fell to just 0.10% in an effort to stimulate a struggling economy. A boom in property prices followed.

Battling inflation

Australian interest rates could not stay at rock bottom forever. But when they rose, they rose fast.

A complex combination of strong post-lockdown economic recovery, supply chain constraints and the disruption of Russia's invasion of Ukraine in 2022 led the RBA to very suddenly start raising interest rates.

What is the average savings rate?

The graph below shows the average bonus savings rate across Australian savings accounts each year.

YearAverage bonus savings rate

Source: RBA

How the RBA sets interest rates and why

The RBA plays a major role in overseeing Australia's monetary policy. This includes setting the cash rate target. This is a benchmark rate that determines the costs major banks incur when borrowing money from each other in the short term.

The cash rate has a major impact on the rates banks and lenders set for:

Why does the RBA raise or lower the cash rate?

The cash rate is a policy tool that allows the RBA to influence the economy. Generally speaking:

  • A higher cash rate makes money more expensive to borrow. Higher interest rates reduce people's borrowing and spending and can therefore lower inflation. This is because it's harder to spend money when credit is expensive. The RBA may lift interest rates to lower inflation or cool a booming but possibly unstable economy.
  • A lower cash rate makes money cheaper to borrow. Lower interest rates encourage borrowing and spending. This boosts economic activity because it's cheaper to access credit. This can lead to higher property prices, more consumer spending and higher inflation.

What happens to home loans and savings accounts when the cash rate moves?

  • When the cash rate increases, lenders quickly pass on rate increases to borrowers with variable rate home loans. This makes your home loan repayments more expensive. Banks may increase the rate on your savings account, but they may not pass on the full rate rise, or offer any increase at all.
  • When the cash rate falls, lenders mostly pass on the rate cut to borrowers with variable rate home loans. This is good news for borrowers. But your savings account rate will probably decrease, meaning you earn less interest on your savings.

There's much more to interest rates than the cash rate

Banks and lenders adjust their interest rates on home loans and savings accounts because of many factors. The cash rate is a major one, but there are many others.

  • Competition and strategy. Banks are competing with each other for customers. Sometimes a bank will deliberately increase its savings account rates to entice more customers, or lower its home loan interest rates to attract new borrowers.
  • Funding costs. Banks and lenders borrow money from many sources to cover withdrawals from customers or the money to fund a home loan. The interest rates banks pay to borrow this money from various money markets or other sources affect the rates bank set for customers. As some of this money comes from overseas, interest rates in other countries (most notably the US Fed) influence Australian bank rates regardless of what the RBA does with the cash rate.
  • Risk. Banks decide their own levels of risk and factor this into their loan interest rates. A bank may decide it is overexposed to loans for property investors, and raise rates to reflect this. Banks and lenders can set interest rates for individual borrowers, but in practice this happens with personal loans and not with home loans or savings accounts.

Written by

Alison Banney

Alison Banney is the money editorial manager at Finder. She covers all areas of personal finance, and her areas of expertise are superannuation, banking and saving. She has written about finance for 10 years, having previously worked at Westpac and written for several other major banks and super funds. See full profile

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