Financial tips for consumers during the rising interest rate cycle

The latest increase in interest rates is possibly not the last that South Africans will experience over the course of this year. This is largely due to the weak rand and rising maize prices posing a risk to the country’s inflation outlook.

Ester Ochse, FNB Financial Advisory Channel Head, says even though the increase in interest rates will benefit those with savings and investments, consumers who are servicing debt will be negatively affected.

If you have a prime-linked home loan, the increase will be felt on your pocket. For example, on a R500 000 loan an increase of 0.50% would equate to approximately R208 per month more. If you have fixed your rate then there would be no impact.

Even though consumers’ disposable income could remain under pressure due to the rising cost of living, Ochse says those who make an effort to put away some money will be rewarded for their financial discipline.

Ochse offers the following tips:
·         Increase your mortgage payments where possible to reduce your debt. First time home buyers can use available calculators to determine what the increase in interest will mean for them. For example, if you secure a loan at a rate of 9.75%, increase it to 10.75% when doing you calculations, to get a sense of how much you are likely to pay in future.

·         Avoid surrendering your short-term and long-term insurance policies. Speak to your financial planner about the options available to you.

·         Draw up a budget and stick to it. 

Economists across the country are unanimous in saying South Africa is in the midst of a rising interest rate cycle. Many expect the South African Reserve Bank to continuously increase rates should the risk of rising inflation persist.

“It’s common knowledge that this year will be quite tough economically. This is largely why people should act now to secure a better future by embracing a culture of saving and investing. The earlier you start, the more you stand to enjoy better financial benefits when your investment matures,” adds Ochse.