Interest Rates Explained
Earlier this month, the Reserve Bank of Australia (RBA) increased the cash rate to 3.85%, making it the first rate increase for the 2026 calendar year.
Interest rates shape two everyday things: what it costs to borrow money, like mortgages, car loans and credit cards; and what we can earn on cash we have in savings. In Australia the RBA sets the cash rate – and that interest rate is the percentage that dictates how much interest you’ll pay or earn on a financial product. A higher interest rate means you’ll pay more to borrow money or earn more on an initial investment. A lower interest rate means you’ll pay less to borrow or earn less interest on your investment.
Interest rates are one of the main tools and levers the RBA uses to manage inflation and guide the Australian economy. Most interest rate decisions come back to inflation, or how quickly prices are rising across the economy and the change in the cash rate is intended to slow down or increase that demand.
When rates move, they tend to affect:
- how much borrowers repay
- how much savers earn
- how quickly housing prices and other assets grow
- how willing households and businesses are to spend or invest
Understanding what your interest rate is (and ensuring you’re getting the most competitive rate), your capacity to repay any loans and to ensure that you have buffer in your cashflow budgets to adjust to any interest rate changes will make for more robust cashflow planning. If you have any questions related to interest rates or cashflow planning, don’t hesitate to get in contact with us at STS Accounting.
