Cash rate on hold: Consumers urged to chase the best rates to 'future-proof' their finances

The cash rate is on hold, but how will you future-proof your finances? Comparing mortgage or savings rates could be a good place to start. Image source: Goksi, Shutterstock.

Though the official cash rate will remain unchanged for another month and looks set to stay the same for some time, Australians are experiencing a high degree of uncertainty about money in the midst of a pandemic and recession. One expert has urged property owners and savers to start future-proofing now by finding a better interest rate.

The board of the Reserve Bank of Australia (RBA) decided to leave the cash rate on hold at 0.25% today at its monthly meeting, and will not raise it again until jobs, incomes and businesses start to bounce back from the effects of the pandemic-induced recession.

RBA Governor Philip Lowe said as much in his statement accompanying the announcement, emphasising that there would be no increase to the cash rate target until progress was made towards full employment and increased inflation between 2%-3%.

He said inflation was expected to remain below 2% “over the next couple of years” and the unemployment rate could rise to around 10% later in 2020 due to further job losses in Victoria and more people elsewhere in Australia looking for work.

The economy’s recovery could be better placed than this though if the virus is able to be contained in the near future, he said.

The cash rate’s current level of 0.25% is a record low, and Canstar data shows consumer interest rates on products like home loans, savings accounts and term deposits are as well.

That’s good news for savvy borrowers who can pay less interest than they have in the past by switching to a better rate, but it means savers need to actively chase the best rates for a decent return.

And both sets of consumers are having to manage their personal finances carefully, at a time when Canstar research suggests 35% of Australian adults, or around 6.9 million people*, have had their income affected by the pandemic.

For mortgage holders, that increases to close to one in two (46%).

Canstar finance expert Steve Mickenbecker said anyone with a property loan or a savings goal may want to consider future-proofing now, to remove some uncertainty.

“You don’t have to be alarmist to see now is a great time to look for massive loan repayment savings, while you can,” Mr Mickenbecker said.

He said anyone with a mortgage who had been fortunate enough to keep their income unscathed could save significantly on their monthly repayments by looking into refinancing, while the door to refinancing could also still be open to borrowers with reduced incomes, as long as they had continued to meet their regular loan repayments.

↓ Keep reading to discover where to find the top interest rates for home owners and savers

“Around 90% of property loans are not on a repayment pause, indicating that many borrowers whose income has been impacted by the pandemic are still meeting repayments,” he said.

Statistics released by the Australian Prudential Regulation Authority (APRA) today showed close to 10% of total outstanding loans had so far been granted temporary repayment deferrals, accounting for $274 billion worth of loans. Mortgages made up the majority of those deferred loans, APRA said.

Borrowers are starting to catch on to the savings potential of refinancing, with the latest Australian Bureau of Statistics (ABS) figures on home loans showing the total number and value of refinance mortgages rebounded by over $15 billion or around 26% in May 2020, representing the largest month-on-month increase in nearly 20 years. That said, the ABS noted this jump only reflected “a small bounce back in activity after April’s sharp fall, which was due to COVID-19 impacts.”

The data showed the number of refinancing loans where people switched lenders reached a record high of 21,473, while loans where customers negotiated a better rate with their existing lender hit 12,239.

For Australians looking to future-proof their finances now, we’ve wrapped up the top rates on Canstar’s database for property owners and savers at the time of writing.

Top home loan interest rates

If you want to better-manage your personal finances, one tip from Mr Mickenbecker was to switch to a lower home loan rate if you can right now, and pour any savings into your offset account to help reduce the interest burden on the mortgage.

Top variable rate loans for owner-occupiers paying principal & interest

1.99%, reverts to 2.57% (comparison rate 2.55%) – loans.com.au’s Smart Booster Discount Variable 1 Year Intro
2.19% (comparison rate 2.19%) – Reduce Home Loans’ Super Saver Variable
2.29%, reverts to 3.74% (comparison rate 3.90%) – Community First Credit Union’s Accelerator Package Home Loan P&I 2 Year Intro
2.39% (comparison rate 2.40%) – TicToc Home Loans’ Live-in Variable P&I
2.39% (comparison rate 2.42%) – Homestar Finance’s Star Essentials 80% Owner Occupied 150-850k

Source: www.canstar.com.au – 4 August 2020. Based on variable owner-occupier home loans on Canstar’s database for a loan amount of $400,000, at 80% LVR with principal & interest repayments; including introductory loans. Comparison rate calculated based on a loan amount of $150,000 repaid over 25 years. One product per lender listed, and sorted in ascending order by rate, followed by comparison rate, followed alphabetically by lender.

Top one-year fixed rates for owner-occupiers paying principal & interest

1.98% (comparison rate 2.51%) – Homestar Finance’s Star Classic Owner Occupied P&I Fixed 1 yr Special Offer
1.99% (comparison rate 2.74%) – Bank of Us’ FlexiDiscount Special Fixed 1 yr 80-90%
2.09% (comparison rate 3.53%) – Greater Bank’s Great Rate Fixed 1 yr
2.14% (comparison rate 2.46%) – UBank’s UHomeLoan Fixed P&I 1 yr
2.18% (comparison rate 3.83%) – Newcastle Permanent’s Premium Plus Package Residential Fixed P&I 1 yr 5k+ Special Offer

Source: www.canstar.com.au – 4 August 2020. Based on 1-year fixed owner-occupier home loans on Canstar’s database available for a loan amount of $400,000, at 80% LVR with principal & interest repayments. Comparison Rate calculated based on a loan amount of $150,000 repaid over 25 years. One product per lender listed, and products sorted in ascending order by rate, followed by comparison rate, followed alphabetically by lender name.

Top interest rates for savers

Another personal finances tip from Mr Mickenbecker is to switch to a higher-earning savings account or term deposit and play the ‘rate game’ of chasing a better promotional offer every few months.

Top savings account rates

2.20% – Heritage Bank’s Online Saver (0.80% base rate + 1.40% promotional rate for four months)
2.10% – HSBC’s Serious Saver Account (0.15% bonus rate + 1.95% promotional rate for four months)
2% – Macquarie Bank’s Savings Account (1.35% base rate + 0.65% promotional rate for four months)
2% – Rabobank Australia’s High Interest Savings Account (0.55% base rate + 1.45% promotional rate for four months)
1.75% – Australian Unity’s Active Saver (0.25% base rate + 1.50% bonus rate)

Source: www.canstar.com.au – 4 August 2020. Based on savings accounts on Canstar’s database for a deposit amount of $10,000. Includes flexible savings accounts that allow flexible access to balance whilst paying an interest rate and bonus savings accounts that pay a bonus rate when conditions are met each month. Top five products selected and listed in descending order by Total Rate, followed by Base Rate. Total Rate includes the base rate plus any applicable conditional bonus rate or promotional rate. Conditions may apply to bonus and promotional rates – contact the relevant company for full terms and conditions.

Top six-month term deposit rates

1.41% – Judo Bank’s Personal Term Deposit
1.30% – Australian Military Bank’s Investment Plus
1.25% – Australian Unity’s Term Deposit
1.25% – BankVic’s Term Deposit (I20)
1.25% – Qudos Bank’s Term Deposit

Source: www.canstar.com.au – 4 August 2020. Based on non-compounding six-month term deposits on Canstar’s database for a deposit amount of $10,000, with interest paid at maturity. Top five products selected and sorted in descending order by rate, followed by alphabetically by provider name.

*The survey findings about Australians with reduced income due to the pandemic were based off a Canstar online survey of 1,024 Australians aged 18+ in mid-July 2020. The latest Australian Bureau of Statistics population data released on 30 June 2020 revealed the number of Australians aged 18+ was 19,746,647.

This article was reviewed by our Sub-editor Tom Letts before it was published as part of our fact-checking process.

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Ellie McLachlan

Former Content Lead

Ellie McLachlan is the former Content Lead at Canstar, helping to shape and deliver the content strategy. She specialises in covering mortgage and everday money topics and breaking finance news. An experienced journalist, Ellie has made her mark working in digital, broadcast and print media, serving in positions such as Editor at News Corp Australia's Compare Money and also News.com.au's Best Of Money, as Story Strategy Coach at the Australian Conservation Foundation, as a lifestyle reporter at The Urban List, The Courier Mail and The Sunshine Coast Daily, as well as radio presenter at 4ZZZ. While at Canstar, Ellie has written well over 500 finance articles and her work is regularly referenced by other publishers, including Business Insider, The Motley Fool and The New Daily. Her expert financial commentary has been featured in publications such as Yahoo Finance and the Herald Sun. Ellie studied a Bachelor of Journalism and Arts (Peace and Conflict Studies) at the University of Queensland. Follow Ellie on LinkedIn, Twitter, and Canstar on Facebook. Meet the Canstar Editorial Team.

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