According to a recent report from comparison site RateCity looking at home loans, credit cards and deposit accounts, interest rates generally are at 60-year lows.
The report found the average variable home loan rate is currently 5.07% – and if you’re paying a higher rate it could be worth thinking about refinancing to a cheaper loan or lender, so long as the refinancing costs don’t render it unviable.
Fixed rate home loans are, on average, charging less than variable rates. The average 1-year fixed rate is 4.55%, rising to 4.75% for a 3-year fixed term.Bear in mind, these figures are averages. With some shopping around it’s possible to secure an even better deal. HSBC for example recently cut its 3-year fixed rate to 4.05% for new borrowings of $50,000 or more.
Along with lower rates, lenders are becoming more inventive in terms of customer incentives. As a guide, ING DIRECT has introduced a cashback rebate on its offset home loan, giving borrowers a 1% cash rebate on monthly mortgage repayments of up to $3,000. This loan has a variable rate as low as 4.48% depending on the amount you borrow.
Strangely though, while lower rates have delivered big savings on home loans, the same cannot be said of credit cards.
According to RateCity’s figures the average card rate is currently 17.03% – up from 16.91% in January 2015 despite a cut to the official cash rate in February. What’s more, annual card fees have risen from an average of $89.34 in January to $94.46 today. Go figure – and go shop around. There are credit cards with an ongoing rate around 10%.
The picture is fairly grim for deposit accounts with online savers currently returning an average of 2.63%. When you consider the inflation rate is 1.7%, your money could be earning just 0.93% in real terms. Furthermore, interest earnings are fully taxable so after allowing for tax, savings accounts are a lacklustre investment right now.
It’s a similar story with term deposits. The average rate on a 1-year fixed term deposit is 2.91%, and while you can bump this up to 3.28% by opting for a 5-year term I’d recommend thinking carefully about locking your money away for such an extended period for this meagre return.
The bottom line is that in an environment of ultra-low interest rates we need to rethink the best way to use spare cash. If you have an outstanding credit card debt, consider focusing on paying off the balance rather than channeling spare cash into a savings account. You’ll get far greater mileage from reducing interest that you owe on your debts, than from receiving interest that’s owed to you from your savings accounts.
If you’re free from card debt, it can be worth using a chunk of the savings provided by lower home loan repayments to start investing outside the family home.
When rates are high it’s a no-brainer to make extra home loan repayments, but even in today’s low rate environment every extra dollar paid into your loan is money well used. That said, another place to consider putting your money is into Australian shares. The Australian sharemarket has historically delivered average long term returns around double many of today’s home loan rates.
If you are comfortable with the risk involved with growth assets, investing in shares or property, or a managed investment fund could provide the beginnings of a well-rounded portfolio.