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What low interest rates mean for consumers

What a low interest rate environment can mean for savers and borrowers

Historically low interest rates are uncharted territory for Australian consumers and the financial institutions that serve them.

The decision by the Reserve Bank of Australia to cut the cash rate to one per cent can be viewed as a positive or negative, depending on how a consumer uses their bank.

Customer Owned Banking Association Director of Strategy Sally Mackenzie says low rates will impact borrowers and depositors differently.

“If you have a variable rate loan with a banking institution, a lower interest rate means you may be paying less interest.

“If your interest charged is less and you maintain your loan repayments at the same level, then you will pay your loan off quicker.

“However, for bank customers that don’t have a loan but instead hold deposits with a bank, it can mean that the interest they earn on their savings or term deposits is likely to be lower.

Ms Mackenzie said this difference in outcomes can make it tough for those dependent on interest payments.

“If someone is relying on interest payments on their term deposits or savings accounts to pay the bills, a reduction in the interest paid each month can make it hard to make ends meet.

“It is also a challenge for financial institutions to ensure they offer competitive rates for both borrowers and depositors.

“Banks use the deposits to fund the loans they write. It’s important that they manage the balance between offering competitive rates while generating revenue to cover their costs.”

Ms Mackenzie recommended consumers look around to see whether they are receiving the best rate possible.

“There are a lot of customer owned banking institutions that are offering attractive rates for borrowers and depositors. It’s worth taking the time to see how they can meet your needs.”

Ms Mackenzie recommended customers visit ownyourbanking.com.au to find out more. 

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