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Economy: Winners of rising interest rates revealed

Homeowners and renters are bracing for more bad news with interest rates tipped to rise again, but there are some people who are benefiting more than others.

Household budgets are being stretched to their limits after inflation hit a massive 6.1 per cent and cost of living pressures, including the prices of groceries and fuel, continue to mount.

But financial experts say some parts of the community are enjoying economic success during this difficult time.

So who are the winners of rising interest rates?

Financial planner and Edith Cowan University lecturer Damon Brown told NCA NewsWire there were two big winners — withdraw and people who locked in fixed rates before the cycle changed.

“Retires who are invested in cash have been doing it tough for the past five years because interest rates on their cash have been very low and below what Centrelink deems them to be earning,” he said.

“For the older people Centrelink deems them when it comes to their the age pension they can receive.

“So it’s called deeming, which is what the Centrelink assumes they can earn from their money, but they might not actually earn that money.

“An example might be my mother who invests all her money in cash. She’s been receiving one per cent interest rate for the last few years but Centrelink assumes that she earns a bit more than that. And so she’s receiving less Centrelink entitlement.”

Mr Brown said people who locked in fixed rates before the cycle changed, like him and his wife who secured a rate just under two per cent, were also doing well.

“We actually locked in for three years a year ago, so we’ve still got another two years to take the big difference,” he said.

Daniel Kiely, a senior research fellow at the Bankwest Curtin Economics Center, told NCA NewsWire rising interest rates were not necessarily a bad thing.

“If the increase in interest rates that we are seeing both in Australia and in other global jurisdictions flow through to the economy, and in turn lead to lower inflation, we will all be winners in the long-run.” he said.

“Lower inflation will make it more unlikely for a global recession to occur.”

In the shorter-term, Dr Kiely said savers would get higher returns on their savings accounts, but the speed at which this occurred would vary from bank to bank and depending on the type of savings account.

“Withdraw may benefit too, if savings supplement another source of income such as a pension,” he said.

“However, for savers and retirees to see the full benefit of such returns, inflation will need to come down substantially.”

Dr Kiely said there was a double edge sword for potential homeowner investors.

“Higher interest rates may stem house price increases and help those saving for a home,” he said.

“But, higher interest rates will also reduce borrowing capacity for many wishing to enter the housing market.”

LCI Lending partner Domenic Romeo said there were still more losers than winners.

“However, the people who have savings in a term-deposit or savings account will benefit from higher interest income rates,” he said.

“Some property investors may find themselves in a better position to purchase a property, due to the softening property prices too.”

In this month’s Finder RBA Cash Rate Survey, 26 experts and economists agreed the cash rate would change on Tuesday, with 23 of them predicting another increase of 50 basis points.

That would bring the cash rate to 1.85 per cent in August.

“A 50 basis point rate increase will see the average Aussie homeowner forking out an additional $610 per month compared to what they were paying four months ago,” Finder’s head of consumer research Graham Cooke said.

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