The Last Time Rates Were This Spicy, People Were Lying Flat Planking for Fun
The RBA has lifted the cash rate to 4.6%. That's our fourth hike this year, and the highest the cash rate has been since 2011.
So let me take you back.
In 2011, I was in my first year of banking, working as a mortgage specialist at NAB North Sydney. Every morning I'd trot off to work in my grey skirt, red cardigan and red scarf. Coffee came from Bacino Bar. If you know, you know.
Julia Gillard was Prime Minister. Kate and Will had just tied the knot. Planking was cool, and people were lying face down on fences, bar tops and office photocopiers for the photo. LMFAO's "Party Rock Anthem" was on every radio station, every gym class and every wedding dance floor.
Instagram was barely a year old, and I hadn't joined yet. And Apple had just released a phone with a quirky new feature called Siri. A phone you could talk to, and it would talk back. Wild times.
Fifteen years on, rates are back at those levels. And just like in 2011, that's good news for some people and not-so-good news for others.
Good news if you've got cash in the bank
Higher rates are welcome news for savers. But only if your savings are actually earning them.
I can't tell you how often I'm working with a client, we do a quick hygiene check on their savings accounts, and we discover they haven't been meeting the conditions for the bonus interest rate. Months of not depositing the minimum. One sneaky withdrawal. And just like that, their savings have been sitting there doing nothing.
Here's your five-minute health check. Look at:
what kind of savings accounts you have
what interest rate each one is actually paying you
what conditions you need to meet to earn that rate
If you've been with your bank for a long time, you could be paying a loyalty tax on your savings. Jump online, compare the highest-paying savings accounts in the market, and see how yours stacks up. If the gap is big, it might be time to move your money somewhere that respects it.
Not-so-good news if you've got a mortgage
Around one in three Australian households has a mortgage (hi, it's me 👋), and for them, four hikes in one year hurts.
Let's put real numbers on it. On a $1 million home loan, these four rate rises have already cost roughly $3,700 in extra interest since January. Over the next 12 months, assuming rates stay where they are, it's close to $10,000 more in interest. That's around $640 extra a month in repayments.
And rates may not stay where they are. Some economists are tipping another hike before the year is out.
Figures are approximate. They assume a $1 million principal and interest loan over 30 years, a 5.50% variable rate before the hikes, and each rise passed on in full. Your numbers will depend on your loan.
Manufacture your own rate cut
You don't have to take these rises lying down (save that for planking).
The quickest win is negotiating a sharper rate. Do your homework first. Look at what rates are on offer in the market, see how yours compares, then contact your bank or mortgage broker and ask for a better deal. Banks often save their best rates for new customers. Make them work for you too.
If your bank won't budge, that might be your sign to refinance elsewhere. Just weigh up any switching costs first, and check you'll still qualify at today's higher rates.
Not sure if your rate is any good? I love Finder's new Roast My Rate tool. Pop in your rate and it tells you how it stacks up against the market. You even get to choose how brutal the feedback is, from a gentle nudge to a full roast.
Ruthlessly renegotiate your bills
Another brilliant way to offset higher borrowing costs is to interrogate your spending elsewhere.
No, I'm not suggesting you cut out all the fun. I'm suggesting you get ruthless with your bills. I saved over $7,000 a year simply by reviewing:
two car insurance policies
our home insurance
two phone bills
my electricity bill
our internet bill
two streaming services we no longer needed
That's a serious chunk of a rate hike, clawed back from bills I was paying anyway.
Focus on what you can control
You can't control the RBA. You can't control inflation or the state of the economy.
But you can control your spending, your saving and your investing habits. Check your savings rate. Ask for a sharper home loan rate. Renegotiate one bill this week.
Small moves, made now, add up to a rate cut of your own. Your money, your move, my friend.
This is general information only and doesn't take into account your personal objectives, financial situation or needs. Consider whether it's right for you, and seek personal advice if you need it.
This is the kind of work I do with clients every day - not just the numbers, but the story behind the numbers. If you're ready to define your enough and build from there, I'd love to work with you. You can find out more about my coaching programs at betsywestcott.com/coaching.