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How does the repo rate affect me?
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How does the repo rate affect me?

The repo rate is the rate at which the South African Reserve Bank lends money to commercial banks in South Africa. The rate is set by the Reserves Bank’s Monetary Policy Committee and is adjusted for the purpose of keeping inflation below the target limit.

When the repo rate decreases, what does that mean for you?

Because other lending and interest rates are linked to the repo rate, a decrease in the repo rate will mean that the interest on your house and vehicle payments or savings and investment products may decrease too. This means that the monthly repayments for your debt will decrease. However, the interest earned from your interest-bearing savings products may also be less.

For example, if you have a savings account with R1 000 000 and an interest rate of 4%, your monthly returns will be R3 333.33. If there is a rate cut on the back of a repo rate decrease and your interest is lowered to only 3.5%, your interest payout will be reduced to R2 916.67 monthly.

TIP: In this case, choosing a savings product with a fixed rate such as the Standard Bank Fixed Deposit gives you great returns as well as an added advantage of your rate remaining unchanged when the repo rate decreases.

When the repo rate increases, what does it mean for you?

Interest rates on your debt will increase but the good news is that the interest rates on savings and investment products will increase too. This is the perfect time to start saving towards that one goal you have been putting off. We have a suite of savings and investment products that offer competitive rates and help you to reach your medium- to long-term goals.

Using a similar example, if you have a savings account with R1 000 000.00 and an interest rate of 4%, your monthly returns will be R3 333.33. If there is a rate increase as a result of a rise in the repo rate and your interest is boosted to 4.5%, your interest payout will increase to R3 750.00 monthly.

TIP: In this case, you have an opportunity to save. On a tight budget, unexpected expenses may be the last thing you need. Try to avoid this by putting some money away into an emergency savings pocket that you can access anytime. Make a list of your needs and wants and challenge yourself to only spend on your needs. The money that you would have spent on your wants can be deposited into a savings account such as the Standard Bank MarketLink, which allows you to deposit regularly and gives you access to your money when you need it.

Contact an investment advisor to find out which account is right for you.