Recently the Reserve Bank of Australia (RBA) announced that it would hold official interest rates at 3.0% for the foreseeable future. For some this was good news; for others the lower interest rates would have made things better.
Why are interest rates so important? For modern economies interest rates are an intricate link to financial markets and to the economy itself. Interest rates can affect consumer spending and they can affect how companies decide to invest .
This in turn can affect how companies could spend on new plants or upgrading existing facilities. They can also impact how capital moves from one country to another. A good example is that the relatively high interest rates in Australia, compared to other developed countries, have seen record inflows invested in Australian interest bearing securities.
At the individual level, the interest rate is what you receive for investing money or what you pay for borrowing other people’s money. The amount of interest or the interest rate makes a difference in how soon you pay off your loan. The amount of interest you receive makes a difference in the rate of growth for your money. For example, without considering the tax position, at 6.5% interest a $50,000 investment in cash based investment would grow to $ 68,500 in 5 years. A drop of interest rate to 4% would see the same investment grow to $60,830 over the same period.
Interest expenses may subtract several thousands of dollars away from your bottom line each year. For wealth creation, it is important to understand that the prevailing interest rate environments impact purchasing decisions. Being aware of the current interest rates and how the RBA is thinking about future official rates will provide a foundation for making investment decisions.
At Solid Financial Advisors we continually monitor interest rates. For investors, the comparison “best effective rates” for one year term $25,000 deposits are:
U Bank 4.70%
For borrowers, based on a loan of $150,000 and a term of 25 years, the “best” comparison variable rates currently on the market are:
Please note that these rates may vary depending on dollar value and condition applied by the lending institution at that time of offer. Different terms, fees or other loan amounts might result in a different comparison rate. Some rates listed may be promotional rates.
The comparison rate is true only for the example given and may not include all the fees and charges such as redraw fees and early repayment fees. These may affect the cost of the loan. Costs such as redraw fees or early repayment fees and cost savings such as fee waivers are not included in the comparison rate but may influence the cost of the loan.
Nick Status – Solid Financial Advisors