Changes to the national cash rate often lead to changes in interest rates from banks and other financial institutions. A rising cash rate often leads to increasing interest rates, and cuts to the cash rate can see interest rates fall.Â
Lower interest rates can be welcome news to borrowers with credit products, such as home loans, personal loans and car loans. Falling variable interest rates can mean cheaper loan repayments, easing pressure on household budgets, or giving borrowers an opportunity to pay off loans sooner. On the other hand, a rising cash rate can see variable interest rates increase for these loans, potentially leading to financial stress. Â Â
Credit card interest rates aren’t typically affected by changes to the RBA cash rate. This is partially because credit cards are effectively unsecured loans, with higher interest rates required to help cover their higher risk.
Changes to the RBA cash rate can also affect savings products, such as savings accounts and term deposits. If the interest rates rise along with the cash rate, account holders may be able to earn more interest from their savings, growing their wealth faster. But if the cash rate falls and interest rates are cut, you may not earn as much interest on your savings.
Keep in mind that while changes to the cash rate can affect interest rates, it’s not the only factor in play. Banks and financial institutions have multiple funding sources, and may choose to raise or lower their interest rates out of cycle from the RBA.Â