How to manage changing interest rates

Interest rates have recently gone up because the economy is changing. While changes like this can feel unsettling, understanding why rates move — and knowing what steps you can take, can help you stay in control of your finances.

Interest rates are one of the tools used to help manage the economy. If the price of the goods and services you buy increases (this is called inflation), the Reserve Bank of Australia might raise interest rates (also known as the cash rate) to help slow inflation. Higher rates make loans more expensive and increase the cost to borrow money, so people and businesses generally spend less. When spending slows, inflation tends to ease. 

Learn more about the Reserve Bank’s most recent cash rate announcement.

Practical ways to manage a rate rise

While you can’t control interest rate decisions, there are steps you can take to manage the impact.

1. Review your budget

Having a clear view of your income and expenses can help you identify where small changes can be made. A good place to start is to look at your bank statement to find out how much money is going in and out over the month. You can also use the Spending tool in the NAB app which can help you to keep track of your expenses and organise your money. 

If your expenses are more than your income, work out which expenses are ‘must haves’ and which are ‘nice to haves’. The nice to haves, such as takeaway and regular trips to the movies, might have to be trimmed.

If you’re new to budgeting, read more budgeting and saving tips.

2. Enjoy higher interest on your savings 

If you’re able to, adding extra funds to savings can help cushion the impact of higher repayments. In a high interest rate environment, there can be big benefits to using a savings account. For example, the NAB Reward Saver rewards regular deposits with bonus interest while the NAB iSaver offers a great introductory rate.

3. Review your home loan

When it comes to your home loan, it’s never too early to decide what kind of loan suits you. For example, if your family budget is tight, you could fix the interest rate on your home loan. This protects you against a further rise in interest rates for the duration of that fixed rate period. It also means you’ll know exactly how much your repayments will be each month, making it easier to organise your budget. 

If your finances are more flexible, you may be interested in sticking to a variable interest rate. Learn about the difference between variable rate and fixed rate home loans. 

You could also consider offset accounts. These are a type of transaction account where you can deposit or withdraw money anytime you like. The big advantage is that the money in the account offsets your home loan balance. This reduces the amount of interest you’re charged each month.

4. Reduce higher-cost debt first

If you have more than one type of debt, some may charge higher interest than others. Paying off higher interest debts first, such as credit cards or personal loans, may help lower the total interest you pay over time — especially when rates rise. 

5. Get support early if you need it

If you’re feeling stretched, get in touch to discuss your options. We’re here to help.

6. Staying informed as rates change

Interest rates will change as the economy changes. Understanding what’s happening, and taking practical steps where you can, may help you manage your money with greater confidence through changing interest rates.

Stay up to date with expert insights on rates, inflation and the economy.