So, you guys have probably seen it all over social media – interest rates will rise again. But what does that really mean?

So, why is this happening?

Inflation. Inflation is the rate at which the prices of goods and services increase over time. Inflation is a normal thing and healthy for a growing economy, but when inflation rates rise too high or too quickly it’s time for the RBA to correct this by raising the cash rate.

Inflation can be caused by a lot of different things, changes in supply and demand, natural disasters, and even taxes. When the price of the goods you buy every day goes up you can’t buy as much stuff with it. As the price of your everyday living expenses increases and your income remains the same that is obviously a huge blow to the family budget.

This is where raising the cash rate comes into play. The idea is by increasing the cost of financing, people will be less likely to borrow and spend money. Reducing demand and increasing supply and lowering the cost of goods again. The idea is to encourage you to pop your spare cash into a high-interest savings account and grow it. Keeping more money out of the economy.

But what does that mean for the average Australian? Well if you have a mortgage or any loan on a variable rate, your repayments on that loan are going to increase. On the other hand, if you have savings you might actually benefit from an interest rate rise.

While rising interest rates might not seem like exciting news, they are a key part of keeping our economy stable and protecting the value of our money. It’s all a part of the bigger picture of a healthy economy.

Hang on and Save your money,

Emily,

Aussie Debt Free Girl