What the RBA rate cut means for your credit cards

What the RBA rate cut means for your credit cards

  • Here’s four ways to benefit from the new rate.
  • Will a drop in interest rates see a rise in strong credit card offers?
  • Get the skinny on what the 0.75% cash rate means for your plastic.

The Reserve Bank of Australia has cut the official cash rate to a historic low of 0.75 percent in a bid to boost the economy. But what does this move mean for credit cards? More than you’d think.

It’s no secret that speculating on the Australian economy is on the tip of everyone’s tongues. With every man and his dog throwing their hat in the ring, it’s time to shine a light on what this means for the plastic in your pocket.

Will there be lower credit card interest rates?

If the banks were to pass the interest rate cut onto credit cards then you would be set to pay less interest on the purchases you make – and who’d say no to that? It’s great as it means it’s more affordable to spend on your card and pay off what you owe. On one hand, it can entice the best of us to spend more credit meaning we’ll have more to pay off in the long-run. But, if you don your smart cap – it would be a fantastic opportunity to use your credit card to improve your credit score while earning points in the process. 

Let’s say your bank passes the interest rate cut onto credit cards, you could run all your everyday purchases through your credit card and pay it off in full before the end of the month. Even if it runs into the following month’s statement, you’ll have a very low amount of interest to pay on purchases made. Not only is this a great way to build your credit score by showing you’re able to pay off what you owe quickly, it allows you to earn points should you have a point earning card.

Unfortunately, a cash rate cut from the RBA usually doesn't affect credit card interest rates. So what else could you possibly see? 

Stronger credit card offers could emerge.

With a historically low-interest rate comes the chance to nab a more attractive personal loan. This means people that would traditionally apply for a new credit card might instead switch to another line of credit. Enter stronger credit card offers. 

If this happens, your current bank might not lower its credit card interest rate and you’ll be stuck with an average offer. It’d certainly be the perfect time to jump banks to a provider that offers a better rate with other attractive features like a 0% balance transfer introductory rate to help you pay off what you owe. 

Homeowners will have more disposable income.

Let’s say you have a home loan of $384,700 and your bank passes on the rate cut in full. You could save almost $42,000 over 30 years. While it won’t feel like much on a day-to-day basis, that’s a huge chunk of change you could use to lower your credit card balance each month. 

Equally, you could use the spare change to fatten your savings account or treat it as disposable income to spend on things you’d otherwise not be able to buy. In short: the rate drop will help you pay less interest on your mortgage paving the way for buyers to re-enter the housing market while giving existing homeowners some repayment relief. 

Savers with locked term deposits won’t feel the 0.75% effect.

Stashing cash away for your nest egg? The interest rate drop unfortunately won’t help anyone saving for a rainy day, unless they have a locked term deposit. However, should interest rates rise again in the future these people won’t get to enjoy the associated perks. Of course the RBA have slashed interest rates to incentivise spending, but it’s a good time to take heed and consider having two savings accounts: a locked term deposit account and an everyday savings account.

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