What the Reserve Bank’s rate cut means for your pocket

Moneyweb takes a look at what it means for your home loan and savings accounts.

JOHANNESBURG - The Reserve Bank unexpectedly announced a 0.5% cut in the repo rate. This means a drop in home loan payments, but on the flip side a cut in your cash interest rates.

Using the Absa home loan calculator shows that on a R1m home loan your payment would drop from R9 983.80 to R9 650.22 as the prime interest rate drops from 10.5% to 10% (assuming your home loan is at prime). This is a saving of R333.58.

Carl Fischer, the executive responsible for marketing and external communication at Capitec Bank, said the bank would cut interest rates "as soon as possible... we might hold out till month-end". Absa has announced that its prime rate will drop 0.5% from March 26.

Using Capitec's savings calculator, in an assumed situation of saving R1 000 per month a 0.5% cut in interest rate (from 6.25% currently for balances higher than R10 000 to 5.75%) would mean that you would earn R28.43 less interest over a year. At 6.25% one would end up with a final balance of R12 349.79 versus R12 321.36 at 5.75%.

A pensioner called Moneyweb earlier saying he has about R700 000 in a fixed deposit with Capitec. The maximum interest rate he could earn is 10.28% on a lump sum option for 46-60 months. He mentioned that it is coming up for renewal soon, so one may assume a 0.5% cut in his return to 9.78%.
This means his annual interest drops from R71 960 to R68 460.
Write to Chris Blaine: chris@moneyweb.co.za

Article by: Cris Blaine - www.realestateweb.co.za