The Current State of Interest Rates in Australia

It is no secret that COVID-19 has had a significant impact on Australia’s economy throughout all of 2020, and so much uncertainty about the recovery has had a crazy effect on Australia interest rates in 2021.

In this article, we will review how the Australian Government’s economic response and fiscal policies have impacted interest rates, how long they might stay at such a historical low, and what the everyday Aussie can do to take advantage of this unique opportunity to get a great bank interest rate in Australia.

Interest Rates and Quantitative Easing Explained

For the first time in Australia’s history, the Reserve Bank of Australia has introduced “quantitative easing”. In short, quantitative easing is a licence to print money – in Australia’s case, $100 billion dollars’ worth, to be precise. This type of economic stimulus is used as a last resort by governments in order to control interest rates and maintain economic growth by ensuring there is enough credit in the economy.

When there is insufficient cash flowing through the hands of businesses and individuals, they become insolvent, can’t pay their debts, and effectively go bankrupt. By putting more money into circulation through lending to big banks, increasing social security payments and encouraging investment in projects that employ people, the government has stepped in to help to alleviate cash flow and liquidity problems, keep businesses running and make sure everyday Aussies have food on the table and a roof over their heads.

Why Are Interest Rates So Low Right Now?

As we all know, COVID-19 restrictions brought the global economy to a grinding halt, and as a result of decaying trade and commerce, many businesses' cash flows also slowed. Reducing interest rates in 2021, therefore, puts more cash into the economy by making it easier and less expensive for the Australian Government, businesses and everyday households to borrow and invest money.

Provided the Government effectively manage this situation over the long haul, the economy can theoretically be kickstarted without the negative impacts of stagflation (where the economy isn’t growing but prices are going up) or hyperinflation (where prices suddenly and sharply increase).

How Long Will Interest Rates Stay Like This? Will They Go Up or Down from Here?

Every month, the Reserve Bank of Australia announces where the “cash rate” will sit. Simply put, the cash rate is the interest rate at which the RBA loans money to the “big banks”. The big banks then pass a similar interest rate down to consumers.

The decision as to whether the cash rate moves up or down is left to top-level economists and experts to calculate in line with the government’s economic targets for our country.

Of course, there is no way to foretell what is going to happen in the future or on the global stage (case in point: COVID), so calculating these figures is somewhat of an imprecise art and science. However, adjustments are made as economic events occur, to try and keep the economy growing sustainably in the long run.

How long the rate of interest in 2021 will stay at the current level, and whether they will increase or decrease next – we just aren’t sure! That’s the big question for our policy makers – and even some of the world’s top economists and investors get it wrong! What we do know is that right now everyday Aussies have an opportunity to take advantage of the situation to put themselves in a better financial position for the long term.

Read More: Fixing Debt: Is There a Problem?

What Can I Do to Take Advantage of These Low Interest Rates?

Number one, we certainly don’t recommend rushing out to get a credit card (as tempting as it may be)! Yes, interest rates in 2021 are at an all-time low. But having a good budget, financial self-discipline and making sound money decisions will always ensure you end up better off overall!

- Pay Off Debt‍

Currently you’re saving on interest, so rather than borrowing more, take this opportunity to pay extra off your debts whilst you can!

- Refinance‍

If you are on a variable loan, make the low interest environment work for you by refinancing! Shop around online and speak to a mortgage broker to renegotiate with your current lender or jump ship to a more reasonable lender, and you could potentially save thousands of dollars off your mortgage interest rates or other loans!

- Shop Around for a High Interest Savings Account‍

Unfortunately, low interest rates for borrowers also means low interest rates for savers. If you do have cash stashed away in a savings account, go online and compare your options! Don’t be afraid to move your money over to a bank or credit union that can offer you a better savings interest rate; at the end of the day, it’s your hard-earned money and you want to see it grow!

- Invest Wisely‍

If you are fortunate enough to be in a financial position where you can afford to put money toward an investment that is likely to increase your wealth, make sure you have an emergency fund saved and your insurances up to date (just in case)! Nothing could be worse than renovating your house or buying a car, and not being prepared for the possibility of losing your source of income and then being unable to service the repayments.

If you have looked at refinancing but are ineligible because of a bad credit score, or you are struggling and wondering how you will ever pay off your debts, today is the day to call us. Our team of debt experts is well versed in the field of personal insolvency and will be able to review your financial circumstances to help you find a debt solution for your unique situation.

All it takes is a quick phone call to our office on 1300 003 328, and one of our friendly team members will be able to guide you through your options so you can look forward to taking control of your finances and a debt-free future!