Andrew from Vista Financial

Interest rates – on the way up?

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    BT Financial Group Chief Economist Chris Caton predicts official interest rates will end the year at 3.0%, an increase of 0.5% on today’s rate. This would be first rate rise for more than three years. Official interest rates have now been below 5% since December 2008 and less than 4% for most of the past two years, as you can see from the table below.

     

    A rise in official interest rates is generally bad news for borrowers. A 0.5% rise in official interest rates usually translates to a 0.5% increase in variable mortgage rates, which would bring them to an average of about 5.6%1. If Mr Caton’s prediction is correct, fixed rates are also likely to start to increase by the middle of the year. Again bad news for borrowers but good news for long-suffering cash and term deposit investors.

     

    The average interest rate for a $10,000 investment in a 12-month term deposit is currently 3.4%2, well down on the 6.15% average being offered three years ago.

     

     

    [TABLE=class: cms_table, width: 230]

    [TR]

    [TD=width: 105] Date[/TD]

    [TD=width: 71]Interest rate[/TD]

    [/TR]

    [TR]

    [TD=width: 105] March 2012[/TD]

    [TD=width: 71] 4.25%[/TD]

    [/TR]

    [TR]

    [TD=width: 105] June 2012[/TD]

    [TD=width: 71] 3.5%[/TD]

    [/TR]

    [TR]

    [TD=width: 105] September 2012[/TD]

    [TD=width: 71] 3.5%[/TD]

    [/TR]

    [TR]

    [TD=width: 105] December 2012[/TD]

    [TD=width: 71] 3.0%[/TD]

    [/TR]

    [TR]

    [TD=width: 105] March 2013[/TD]

    [TD=width: 71] 3.0%[/TD]

    [/TR]

    [TR]

    [TD=width: 105] June 2013[/TD]

    [TD=width: 71] 2.75%[/TD]

    [/TR]

    [TR]

    [TD=width: 105] September 2013[/TD]

    [TD=width: 71] 2.5%[/TD]

    [/TR]

    [TR]

    [TD=width: 105] December 2013[/TD]

    [TD=width: 71] 2.5%[/TD]

    [/TR]

    [/TABLE]

     

    Source: Reserve Bank of Australia (RBA) -

     

     

    http://insights.bt.com.au/interest-rates-on-the-way-up/

    Edited by Andrew from Vista Financial

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    Hi

    we have savings in the uk and are trying to weigh up exchange rate vs interest rate

    any advice

    cheers

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    Hi

     

    Obviously it is impossible to predict what will happen with exchange rates going forward.

     

    It really comes down to what you are looking to do with your savings and the purpose of them i.e purchase a house, invest for the future, leave in cash etc as well as your views on exchange rates.

     

    If for example the asset you will be investing in/using the money for is a growth asset (like a house or shares) then there is the potential upside and perhaps for the asset to outperform what waiting for an exchange rate improvement may bring.

     

    If however the asset is a defensive asset (like cash) then it may not take much of an improvement in the exchange rate to outperform the difference in a slighty better interest rate.

     

    Regards

     

    Andy

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