The OCR - how does it affect you?

You may have heard about the Official Cash Rate (OCR) in the news, but why is it important and how does it affect you?

Eight times a year the Reserve Bank reviews the OCR to control inflation and stimulate or cool the economy. In today's review, the OCR was raised by 0.25% to 3%.

Movements in the OCR can have a number of effects on our everyday lives. The reason for this is that the OCR influences the interest rates that banks offer investors and borrowers.

When the OCR increases, borrowing money becomes more expensive. So the interest you pay could increase if your bank increases its interest rates – as a result of the OCR changing. This isn’t good news if you have a mortgage. For example, if you have a floating mortgage it could mean the interest rate increases along with your repayments.

But it’s good news if your money is in the bank earning interest in a savings account, because it’s likely your bank’s savings interest rates will increase too. Therefore, you earn more on your money.

These changes in your mortgage payments or interest on savings will alter your budget so it’s worth keeping an eye on changes to the OCR and adjusting your finances accordingly. Sorted’s mortgage repayment calculator will help you work out how a new interest rate will affect your repayments or the term of your mortgage.

And if your money is in the bank in a savings account, use Sorted’s savings calculators to work out what the changes could mean for your nest egg.