Eight times a year your news headlines get flooded with the Reserve Bank of Australia’s (RBA) latest cash rate verdict - to cut, pause or hike up the rate.

While your coworkers with mortgages might be paying close attention to this information, maybe you’re quickly scrolling past to watch a cute dog Reel instead.

Cos if you don’t have a mortgage, then the cash rate doesn’t impact you, right?

WROOOOONG

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If you’re feeling bamboozled, don’t worry. We know the economy works in strange ways and sometimes it's hard to make the connection between the cash rate and why your weekly coffee has almost doubled in price.

So today we’ll break down five ways the cash rate probably still impacts you even if you don’t have a mortgage.

🐖 Interest on savings

Got savings in a bank account? The cash rate impacts you. Often when the RBA makes changes to the cash rate, the banks will follow by adjusting the interest they pay on savings balances.

When the cash rate is high, generally the variable interest rate on your savings account is higher too.

This can vary from bank to bank and even the type of account you have. Since Australia is in a cutting cycle, this means your interest paid on your cash savings may not be as high compared to this time last year.  

You can use information about cash rate changes to make smarter decisions about where to put your savings (hello term deposits and high interest saving accounts?)

☕ Cost of living and inflation

Have you been paying $6 for a coffee that used to cost $4? Or noticed how your landlord is charging much more rent for the same apartment? These are not a coincidence!

The cash rate is controlled by the RBA as a way to influence Australia’s inflation and cost of living. In simple terms:

• Higher cash rate = less consumer spending = slower price increases on goods and services due to more supply
• Lower cash rate = more consumer spending = faster price increases on goods and services to meet demand

Needless to say, there are more layers to this economic equation… but this helps you understand the more subtle ways the cash rate might be impacting you as an everyday consumer in Australia.

And if you’re wondering why cost of living still feels impossibly high despite a lower inflation and multiple rate cuts - we break it down here.

💻 Employment opportunities

Cash rates don’t just impact individuals, they also impact businesses.

When the cash rate is cut and banks pass on the changes, borrowing money becomes cheaper (because borrowers get to pay less interest on the borrowed amount). That’s why your property-owning coworkers love a rate cut…but it’s also good for businesses who borrow money.

When business owners have less interest expenses, they have extra cash to splash on things like hiring staff! Or, they might feel more inclined to take out a loan for business growth activities (like increasing their team size or adding new, specialised talent).

So if you’re on the market for a new job, the cash rate impacts you more than you realise.

📈 Investment returns

Before you say, “I’m not investing”, think again.

If you’re working with an employer or previously worked for one, you probably (by law) have investments in your superannuation. And you guessed it - the cash rate impacts your investments.

Investing usually involves owning shares (which is part ownership of a company) and company valuations typically depend on company performance and investor expectations.

A recent university study found that “lower interest rates can drive stock prices higher as investors seek higher returns” (Byrne, 2024). And companies part of interest-sensitive industries like utilities, real estate and financials tend to be more impacted by interest rate fluctuations.  

💱 Exchange rate and travel costs

Have an overseas trip booked in the next 6 months? Then you’re probably eyeing up Australia’s exchange rate with the country you’re travelling to. After all, a better exchange rate could mean extra cocktails and shopping!

Even though you might be escaping Australia, you can’t escape the impact that our cash rate has on AUD exchange rates. Ideally for travel, you want a strong AUD to get more bang for your buck overseas, and this usually happens when the cash rate is high.

When the cash rate drops, the AUD tends to weaken.

For a list of the best and worst places to travel to based on AUD exchange rates, check out this article here.

So mortgage owner or not, understanding what changes the RBA is making to Australia’s cash rate can help you make smarter money moves!