How the US interest rate rise will affect your bank balance

Predictions are that banks in Australia will follow US with rate rises.
The US rate rise might affect your bank balance.

The US Federal Reserve has raised interest rates for the second time in three months, and this impacts the average Aussie.

The world’s most influential central bank hiked by 25 basis points to a target range of 0.75 to 1 per cent on local data that showed improved job growth and strengthening inflation.

When rates climb, borrowing gets more expensive, and because Australian banks get around 40 percent of their funding for loans from overseas, it’s likely borrowing will become more expensive here too.

Banking analyst Martin North from Digital Finance Analytics told ABC News he had no doubt there’d be knock on effects, with investors and those with home loans likely to see increased rates. He pointed out the lenders often used higher funding costs as an excuse to raise mortgage rates.

Read more: Your premiums are going up and the Senate wants answers.

Australian banks have increased variable home mortgage rates 25 to 30 basis points since they bottomed less than a year ago, which means someone paying a rate of 4.25 per cent could now expect to be paying at least 4.5 per cent. The Reserve Bank of Australia 

Read more: Renting as a retiree comes at a cost.

The US dollar slid after the decision was announced, helping the Aussie-US dollar pair jump 1.7 per cent to the 77 US cent level, making travelling on US dollars cheaper for Australians at least in the short term.  

The ASX 200 was flat today, though, as higher iron ore prices helped the big miners’ shares gain but the broader market’s performance was dampened by a surprise rise in the jobless rate to a 13-month high.  

The Fed lifted rates in December 2015 for the first time in a decade and once previously this year. 

What do you think of the current interest rates in Australia?

  1. Pamela  

    While mortgage rates may well go up, I will be surprised if banks raise the savings rates for any with a little nest egg!

    • Rogers  

      There is also the flip side to this discussion. People with savings will now start to see some decent returns on their invested money in banks. Mortgage rates have been at record lows that should have allowed mortgagees to get ahead, now let retirees with some savings to get a decent return.

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