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My 2017 new year’s resolution is to kick start my learning again (along with other short lived resolutions such as reducing the size of my butt and giving my liver a break). When I worked for the NAB, learning was something I did every day whether it was meeting a new person and learning about their business or the Australian financial markets having a ‘hicup’ and having to understand it enough to explain it to my customers.
There is nothing worse than starting a New Year resolution on your own, so hopefully readers will join me in my nerdy quest. My dad has always said ‘there is nothing more powerful (and scary) than an educated woman’… I am pretty sure he stole this off someone famous, but nevertheless I found that during my nearly ten years in banking this statement is absolutely true.
In financial matters, I have seen countless times where women are underestimated or check out of a conversation because they lack the confidence to get involved, state an opinion or ask a question. So let’s get financially sassy together!
Each month I will write a little something on a financial topic that interests me. Your job is to give me ideas, your opinion and/or submit questions so that we learn together. When you’re sitting around with a glass of vino in your hand, rather than engaging in town gossip [the whole time], ask someone about what they know about financial markets- learn something from them and in return teach them something you know.
I know this might sound super lame but if just a few people know more about how interest rates are set, or what factors affect the Australian dollar, I can guarantee the next time you are trying to buy a house or apply for a loan or have savings you need to do something with, you will be making more informed, savvy decisions. Remember I am not an expert, a financial planner or god- just a nerd with time on her hands.
When I asked Jill Hayes what I should write about first, she said ‘interest rates?’ perhaps next month someone can give me a more specific idea, but in the absence of anything else here goes…
What is the cash rate?
I can guarantee all of you have watched an episode of Today Tonight where they are go undercover to expose the huge amounts of money the banks are making because the cash rate came down but peoples home loans haven’t… sound familiar? Spent time bitching about the banks because they didn’t pass on the rate cut?
Don’t get me wrong, I’m not here to tell you the banks are hard done by, they make sh**t loads of money and it’s actually a good thing (I can explain that next month if you like?). When you borrow money to buy a house, the bank will normally let you pay it off over the next 30 years (how nice of them!).
The cash rate is an interest rate that is set by the Reserve Bank of Australia (RBA). It is the interest rate the banks can borrow from the RBA on an overnight basis. I won’t go into all the nitty details but essentially since the Global Financial Crisis (GFC) the banks aren’t allowed to borrow money on a short term basis to then lend it to you for the long term (like your home loan). This means that whilst movements in the cash rate do affect the big banks cost of operating slightly, there is very little relationship between the cash rate and the rate you are charged for your home loan.
Why is Today Tonight so obsessed about reporting on the cash rate in relation to your home loan? I honestly have no idea! It actually makes no sense. It’s also important to remember that a lot of people have fixed interest rates on their home loans (as opposed to variable)- which means regardless of what the cash rate is doing and even if the cash rate and home loan market were twins [rather than distant cousins, twice removed] their rate would not change.
Why do some banks lower their home loan rates after the RBA announces a cash rate cut? Normally, to get some positive media attention, and to save themselves from having to deal with a bulk load of unhappy customers ringing the complaint line.
Next time you are talking to the bank about your home loan, don’t mention the cash rate. You are better to get a cheaper home loan quote from another bank and take it your current bank at the moment. Why? Because the economy is a little quiet at the moment, so banks are more likely to try and get customers to move their banking rather than wait for their existing customers to buy that second house.
Does any of this make sense? Am I rambling? Have I mentioned something that you find interesting? That you disagree with? More confused than ever? Hit me up at Quairading@crc.net.au or bail me up while I am buying a kilo of chocolate on sale at the IGA (I can’t keep all my resolutions, that’s just un-Australian!).
Cheers & happy home loaning
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Written by Jill Hayes, CRC Coordinator