Interest rates September 2022: Yep… ANOTHER rise

Another RBA rate decision, another cash rate rise by 0.5% to 2.35%. Here’s what that means.

What's the key learning?

The Reserve Bank of Australia (RBA) just raised the official cash rate by 0.5% to 2.35%
Generally when the RBA increases the official cash rate, banks and lenders increase their home loan interest rates

Well, the Reserve Bank of Australia has certainly chosen drama this afternoon. The RBA rate decision is in… and we’ve got ourselves another cash rate rise by 0.5% to 2.35%. And this is the fifth monthly rate rise in a row!

If 2.35% cash rate rate feels high to you, well it kind of is. It hasn't been this high since waaaaay back in December 2014! That makes our current rate the highest in over seven years… Ouch!

‍So, what happens when interest rates rise?

When the RBA increases the cash rate, then the banks will almost always raise the interest rate on your loan. And your interest rate on your savings account should increase too (but often doesn’t).

Experts reckon it takes around two or three months for individuals to feel the full impact of a rate rise on their cash flow… so the impact of these successive rises will be settling in for a while yet…

‍How will the cash rate hike impact my home loan?

Here’s a breakdown of how rate rises could impact your home loan if you’ve got a variable rate:

*Source: MoneySmart. Based on owner occupier loans of $500,000, $750,000 and $1,000,000 over 25 years.*

Why does it feel like rates are so much higher than usual?

You’re not imagining it, they are! But it probably feels even higher because as recently as this May, interest rates were at a historic low of 0.1%.

Here’s a recap of the rises this year:

May four: 0.35%
June eight: 0.85%
July six: 1.35%
August three: 1.85%
September six: 2.35%
October four: TBC…

‍Remind me… what is the official cash rate?

Let’s rewind. The official cash rate is the interest rate for the banks - aka how much interest banks pay when they borrow money. The RBA meets to decide the official cash rate on the first Tuesday of every month (except January). Once it makes that big decision, banks and lenders tend to change their interest rates on savings accounts and home loans (generally, in line with the RBA official cash rate).

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