The +Reserve Bank has just announced an interest rate decrease of 0.25% bringing the interest base to 2.75%. This is very exciting for Australia as it is actually an all time low in interest rates and these interest rate savings will in some instances be passed on to the consumer. +NAB is the 1st bank to move and pass these cuts onto consumers today and we will be waiting to see when +Westpac Australia , +CommBank and +ANZ follow suit.
Why cut the rates?
A slow down in spending in the Australian economy due to the high cost of living in both metro and rural areas has meant people have less money to save and therefore are less likely to be working towards larger expenses such as trading up their homes, renovating and even going on holiday.
Sign posts
Day to day high street spending is down and has been for some time and this has a huge effect on SME high street business and more and more local stores are doing it tough. The retail sector has also announced a 4% drop in spending in the last quarter.
Related reasons for the drop?
The government is $17 Billion short for their budget so they are passing this onto previously promised +family payments by scrapping the new scheme. Overal there is less money coming into the economy from a number of sectors so dropping the interest rate is hoped to encourage spending again - in particular in the housing market.
What does it mean for consumers
As consumers we are getting smarter and the GFC has taught us the value of saving, budgeting and being cautious when it comes to debt. Comparing the costs of what we pay for our cars, coffee and petrol to USA and the UK makes for chilling reading.
This cut can mean a reduction in household in mortgage costs of up to $100 per week based on an average family mortgage of $300k.
Work out your potential savings by reducing your interest payments by 0.25%.
Money Smart not Money Short
Why not take the weekly savings and put them into a high interest savings account to either pay off debt or pay for Christmas this year. If you have an offset mortgage just add the saved interest payment back into the offset account and further reduce your monthly mortgage payments.
Read our finance expert Sally Tyrie's article on interest rates to make sure you are making the most of this interest cut.
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