How to make the most of interest rate hikes

Interest rates are on the up. The Reserve Bank of Australia’s recent decision to raise interest from the record lows of the last few months have a number of significant implications for consumers. For mortgage holders and people with credit card bills it is bad news. However, if you have money to invest in a savings account then you could see a notable increase in returns on your investment.

There is no doubt that the recent rise in interest rates is good news for the economy as a whole. And while Reserve Bank governor Glenn Stevens insist that the central bank will be “prudent” when it comes to further rate increases, it is looking like the only way rates are going to go is up. So what can savers do to prepare for further interest rate rises?

If you are opening a savings account or are coming to the end of a fixed term on a high interest savings account, a variable savings account is probably the way to go. This means that any further rate increases by the Reserve Bank will be passed on to you. If you are locked into a fixed rate account or term deposit account, you could consider opening a new variable savings account to reap the benefits of any increases in the near future.

When considering how you will manage your savings in the improving economic climate it is a good idea to monitor the market. Banks are inevitably quicker to pass on rate rises to borrowers than savers, but try to get an idea of the banks that are quickest to increase rates on their savings and investment products.

Many Australian banks offer savings accounts with variable interest rates. Take for example ING savings products. ING’s Savings Accelerator account offers a competitive variable rate, with increased rates on balances over $50,000. Other ING savings products include ING Savings Maximiser and DIY Super, which offer varying levels of protection against interest rate fluctuations. This is just an example of the savings accounts one bank has to offer, so be sure to shop around.

While choosing the savings account that delivers the best return is important, it is of little use if you are leaking money on debts. Rising interest rates mean that the interest rate on you credit card, and possibly other loans and your mortgage, will also increase. If you have expensive forms of credit try to get them paid off before rates go up again. Alternatively, consolidate your debts into a fixed rate loan before credit gets more expensive. Also, if you have a variable rate mortgage it may be worth considering a fixed rate.

Nobody can tell exactly when interest rates will rise or by how much, but all the evidence suggests that more increases are on the way. This is always a concern for consumers, but with a little financial planning you can make these increases work for you.