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The good and the bad of Thursday's expected interest rate hike

by , 26 January 2016

The South Africa Reserve Bank will announce its first interest rate decision for the year on Thursday.

In the build up to the announcement, many economists were expecting the Reserve Bank to leave interest rates unchanged.

In November last year the decision by the Reserve Bank brought the repo rate (the rate banks lend to one another) to 6.25% and the prime lending rate to 9.75%.

So what does this new expected interest rate hike mean for you?

Let's take a closer look…

The major plus of higher interest rates

Higher interest rates mean that the interest rates your bank pays out on your savings should rise along with this.

This means more interest money for your savings.

Whilst a 0.25% hike isn’t much, it will help to offset the impact of rising inflation, which erodes into how far your money goes.

The larger the sum you have in the bank, the greater the impact of an interest rate hike.

The major minus of higher interest rates

If you have a lot of debt, a rise in interest rates means your debt is now costing you more money.

Unless you have a fixed interest agreement, the interest rate you pay on your debt is higher. The more money you owe, the higher the impact of this interest rate hike.

Interest rates could rise again next year, so if you have a lot of debt, make a real effort to pay off as much as you can each month. The more you overpay, the less your interest payments will be and the closer you’ll be to living debt free.

So there you have it. The good and the bad of today’s interest rate hike.

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The good and the bad of Thursday's expected interest rate hike
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