‘Following the RBA’s decision to raise interest rates yesterday, we will be applying the full increase to all of our deposit and savings accounts immediately’, said no bank ever!
And it probably will be sometime, if not decades before this becomes a true statement.
Much, if not most of the commentary following the first rise in the official cash rate in over a decade centred around the cost of borrowing, in particular for first home buyers. While there was some commentary reflecting the other side of the rate rise coin, relating to those who rely on interest income from bank deposits, it was muted and short lived.
There are a number of reasons for this. In the first place, the reality is that banks are not in need of deposits. On mass, Australian household savings throughout the last two years have grown to record highs.
Another reason for the focus on the impact of rising rates on home buyers, home values and the property market generally is that it is a headline that sells news feeds, gets clicks to news sites and keeps audiences tuned into TV and radio commentators.
With this going on over recent weeks and with the prospect of further rate rises in the near future it’s important to separate news, noise and nonsense and look at what rising rates driven by expected increasing inflation, may mean for SMSF investors, holding cash, shares and property.
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Disclaimer: The information contained in this document is provided for educational purposes only, is general in nature and is prepared without taking into account particular objective, financial circumstances, legal and tax issues and needs. The information provided in this article is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should assess its relevance to your individual circumstances. While SMSF Association believes that the information provided in this article is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001.
Ian Irvine - Guest Contributor
Ian has been a keen investor for over 40 years and can draw on his experiences from both investing on his own behalf and also having worked in financial services for more than 30 years. Over this time, he has seen many changes that impact investors’ attitudes to in what and how they invest.
He started his career in what is now referred to as fast moving consumer goods (FMCG) or grocery, working for an Australian margarine manufacturer. In 1986, he was recruited to Westpac around the time of deregulation of the sector, where he spent 10 years before taking a role at AMP and then with ASX for 14 years up to the end of 2017. He continues to be involved with ASX; working on their educational programs.
In 1996, he and his wife established their own SMSF and again the experience and lessons learned regarding managing an SMSF over the years have provided him with many insights and ideas. He enjoys sharing these with others where these are helpful and always suggest that if an investor or SMSF trustee is unsure, that they should seek appropriate advice from a licenced professional.
Ian holds a B. Com (UNSW), and lives in Sydney and enjoys travelling to and meeting investors and SMSF trustee at the educational events with which he has involvement with from time to time.