Managing interest rate hikes

While it’s always prudent to manage your money wisely and budget accordingly, it’s critical to have a financial plan and suitable strategies in place to help reduce the impact of interest rate hikes on your personal finance so you can cope with rising costs and maintain financial stability. 

How interest rates affect your finances
Interest rates are the cost of borrowing money and the return on lending money. They rise and fall over time, and it’s what financial institutions use to determine how much it will cost you to borrow money, making debt more expensive. 

It also influences your savings and investments because the return (%) on your savings/investment will increase, helping you accelerate your financial goals. 

What you can do to respond to rising interest rates
While the interest rate fluctuations are out of your control, there are steps you can take to minimise the impact and cope with the changes. 
Understanding how your money gets affected by interest rate hikes will help you create a plan for dealing with the rising costs and helping you avoid the financial stress of increased loan repayments. 

Tackle your debt
Focus on getting your debt amount down (as quickly as possible) and rethink taking on new debt. When interest rates rise, the cost of borrowing rises, and therefore, the amount of interest you’ll pay over the life of the loan will grow. More of your budget will be going to repayments, and if you could lower the debt load, it would take the pressure off your pocket. 

Here’s an example of how your monthly bond repayments increase when the interest rates rise. 

Renegotiate or refinance
One way to cope with rising interest rates is to refinance your home, vehicle or other loan or consolidate your debt as there is a possibility that you’ll be able to get a lower interest rate, which could reduce your monthly repayments and how much you’ll pay over the life of your loan. 
Also speak to your insurance provider to see whether they, or other providers, can reduce their fees so that it frees up extra cash. 

Do a balance transfer
Managing different debt amounts from different institutions means you have multiple interest rates that need to be paid. It’s possible to combine your debt in one place and thereby reduce the interest you pay, depending on the amount transferred and the new terms.

The Balance Transfer feature on our Banking App allows Standard Bank Credit Card holders to transfer their personal loan or credit card debt from other banks to their Standard Bank Credit Card.

Learn more

Sit tight in your investments
Don’t cash out your savings and investments: when interest rates are high, you’ll benefit from higher returns and yields thanks to earning more interest, which means your money can grow more and at a faster pace. 
Not only does it mean taking advantage of the opportunity to boost your savings and reach your financial goals faster, but having more cash available could help you pay towards other debts and expenses. 

Disclaimer: This article is solely intended for information. It does not constitute financial, tax or investment advice or recommendation. Please speak to a financial advisor or registered financial professional before making any financial decision(s). 

Standard Bank, its subsidiaries or holding company, or any subsidiary of the holding company and all of its subsidiaries make no warranties or representations (implied or otherwise) as to the accuracy, completeness or fitness for purpose of the information provided in this article or that it is free from errors or omissions.