Today the RBA increased interest rates by 0.50 basis points, taking the OCR (Official Cash Rate) to 0.85 per cent. Though a lot people, predominantly mortgage holders. will be feeling the pain, there are some winners from today’s announcement.
First home buyers
Well, only if they have a big deposit. But there is an upside: after years of being priced out of the market, interest rate hikes will give first home buyers newfound confidence and hope that property price growth will slow or even reverse. If it does, then they will find it easier to get onto the property ladder.
Experts have shared their predictions that interest rates could cause property prices to fall by ten to 15 per cent by the end of 2023 or early 2024. That would go some way to reversing the 23.7 per cent increase across the capital cities in 2021.
Savers
Suppose you had $10,000 in a savings account at an interest rate of 0.35 per cent, your savings would only grow by $35 in the first year you saved.
With interest rates increasing 0.50 basis points to 0.85 per cent you could expert to earn $85, which is more than double what you would have made initially.
Experts are predicting interest rates to increase every month until Christmas so you can expect the potential earnings on savings to increase even further. RateCity research director Sally Tindall spoke to Yahoo! And said: “Savers may finally have something to smile about after two years of earning next to no interest.
“Banks are full to the brim with cash. This will make it a costly exercise to pass these hikes on in full, but that’s what they should do.”
She advised customers to look for a new bank if your existing bank is not increasing your deposit rate.
Retirees and investors
Retirees who previously experienced negative interest rates are likely to benefit from higher interest rates, with Vanguard global chief economist Joe Davis speaking to SMS Magazine and saying that higher interest rates actually improve investment performance.
Davis said that investors will see returns that they have not seen since the global financial crisis.
Banks
Well surprise – banks do well whatever happens, but borrowers often end up paying back faster to avoid interest rates. And then there is the difference in what they can earn from highly rated debt to governments and large corporations.
Insurers
Insurance stocks rise as rates do because of their steady cash flows and general economic health flourish as rates rise. In fact, the relationship between interest rates and insurance companies is linear, meaning the higher the rate, the greater the growth. These same insurance providers, such as The Allstate Corp. (ALL), AmTrust Financial Services, Inc. (AFSIN), and The Travelers Companies, Inc. (TRV), don’t fare as well in low-rate climates because their underlying bond investments yield weak returns.
Insurers, which have steady cash flows, are compelled to hold lots of safe debt to back the insurance policies they write. In addition, the economic health dividend also applies to insurers. Improving consumer sentiment means more car purchasing and improving home sales, which means more policy-writing.
What to do if your bank doesn’t pass on the rate increase on your deposits
- Search for a better deal online. Comparison websites: Canstar, Finder and RateCity show a huge range of financial institutions so you can see who offers the best deal.
- Contact your bank and ask them what the best rate they can offer is.
- Be prepared to move your savings out of your bank and go to a bank that will pass the savings increase onto savers.