What impact might the recent rate cut have on your financial position?
The recent rate cut was anticipated by the overall market, but perhaps not this early in the year. A cut of 25 basis points is a standard reduction, but we haven’t seen a rate this low for over a year and a half. So, if you’re looking at what to make of the cut, here are a few pointers.
If you have a mortgage
If you have a mortgage debt, there will be some extra cash in your pocket. A cut of 25 basis points on a $300,000 mortgage is going to be a saving of around $62.50 a month or $750 a year. In time, this will also further fuel the property market, with a bit more leverage on what potential property buyers are able to borrow.
What to do: Check in on your mortgage. When you negotiate a variable mortgage rate with your bank, there is ongoing opportunity to discuss the rate you are receiving and if there’s an opportunity to receive a lower rate. Similarly, if you haven’t considered a fixed term rate as a part of overall lending, we deal with mortgage specialists who source the best mortgage rates, now is a good opportunity to get in touch with your FMD advsier to review your mortgage.
If you have a term deposit or cash account
Interest rates are the lowest we have seen them for a while, but they have been at an overall low level for quite some time, putting a dampener on the returns of a term deposit or cash account income stream. Term deposits are quite secure investments, but bet aware because the chase for higher yield comes with higher risk.
What to do: Consider your level of risk. Retirees who are weighted towards fix interest and cash type investments reflect a high level of risk aversion in their investment portfolio, and have really felt the brunt of low interest rates in terms of the income produced from their portfolio. It’s a tough place to earn any kind of substantial yield and you sometimes need to think outside the square as to how this can be improved.
Think about how your fixed interest and cash is invested at the moment – are you receiving a good result in terms of the risk you’re taking? Is this now a time to look at different ways of achieving yield? This can be achieved through other options such as convertible notes and shares and dividends received from direct shares which are offering notable returns.
Remember: like with any shift in investment strategy, you need to ensure you’re aware of the risks involved. Speak to your FMD adviser for more information.
If you’re travelling overseas
Against the US Dollar, you might say travelling Australians receive the short end of the stick after a rate cut. Remember that currency is volatile, so whilst it has fallen, it has the tendency to fall even lower but does hold up reasonably well against other currencies such as the Euro and Yen.
What to do: Don’t hold off on travel. The dollar could drop even further, so start booking your destinations soon and fixing exchange rates via a travel card.
What to look for in the months ahead
Another rate cut in the first half of 2015 is possible, and has been speculated by many economists. For the moment, it’s a matter of waiting to see how the rate cut and fall in oil prices will impact on the economy. If the cut does what it is intended to do and growth picks up that, this will be welcomed news and might mean we see the last of the cuts for 2015.
What to do: Feeling unsure about rate cuts and the impact they will have on your financial position? Contact your FMD adviser or book a Free Financial Health Check today.
Please contact your FMD adviser before acting on any information in this article.
General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977. Rev Invest Pty Ltd is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977.