Why do interest rates change?
Interest rates determine the cost of borrowing or lending money and are used to influence the rate of inflation and economic growth. But why do interest rates rise and fall, and how can they affect you?
Who controls interest rates?
The Reserve Bank of Australia (RBA) sets the official cash rate, the interest rate that it charges on overnight loans to commercial banks.
This cash rate affects all of us because it has a knock on effect on financial products, such as savings accounts, term deposits, mortgages and personal loans. It also impacts the cost of funding for the banks.The RBA's objective is to promote a stable currency, full employment and economic prosperity, ensuring that price growth, or inflation, remains relatively low and stable.Its 'monetary policy' involves either raising the cash rate to try and slow the economy down, or lowering it to promote economic growth.The RBA's decisions are based on indicators including employment, inflation, gross domestic product, consumer and business confidence and the housing market.If the economy is growing too fast it can lead to high inflation, while weak economic growth can lead to unemployment, reduced incomes and lower living standards.
Global outlook
The RBA also looks at important international factors that will drive the performance of the Australian economy, in particular demand for and the price of Australia’s natural resources.
If Australia’s trading partners are growing strongly and demand and prices of raw materials are rising, this can lead to strong economic growth in Australia and push interest rates higher.
If commodity prices and demand for our natural resources fall, this could point to slower growth in the future and lower interest rates may be necessary.
When do interest rates change?
The RBA board meets 11 times a year on the first Tuesday of each month, except in January. When they meet, they will raise the official cash rate, reduce it, or keep it the same.For the current cash rate, refer to the RBA website.
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Capital Growth pack |
Companies in the growth pack are selected based on the potential for their share prices to grow faster than the broader Australian market
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Income pack |
Companies in the income pack are selected based on their history of reliably paying dividends with a healthy yield, although their share prices may not grow as fast as other companies.
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Market Leaders pack
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The Market Leaders pack offers a diverse investment in some of Australia’s best-known blue chip companies. Blue chips, typically refer to the 50-odd largest companies listed on the ASX.
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Tax-Effective Income pack |
This pack contains companies that have a history of reliably paying dividends with the added tax benefit of a high level of franking credits. |
Of course, it’s important to understand that regardless of which pack you choose, any company’s share price can always fall as well as rise. By investing in shares you are taking the risk that you could lose money.
Past performance is no guarantee of future performance and should not be relied upon.*
Additionally, companies are not obliged to pay dividends and can change their dividend policy from one year to the next.
How much does a pack cost?
You need a minimum of $4,000 to invest in a pack. There is a maximum limit of $25,000 per pack. Between those two amounts, you simply enter how much you would like to spend at the point of purchase.
The amount you enter will be divided evenly between the six companies. For example, if you want to invest $6,000, CommSec will buy $1,000 worth of shares in each company.
When you buy or sell shares, you also pay a fee to the broker, who places the trade on your behalf. If you buy shares through CommSec outside of a Share Pack, this fee typically starts from $10.00 to $29.95 per company or will be calculated as a percentage of your trade.
With a CommSec Share Pack, the total brokerage rate for all six companies comes to $66. This works out to $11 per company.
Before you buy
To buy a pack, you need to open a CommSec Share Trading Account.
If you are already a CommSec customer, head to the 'Buy Share Pack' page under ‘Trading’.
After you buy
Each time you buy shares, you receive what is called a ‘contract note’ from your broker, confirming the purchase. As you are effectively buying six different shares when you buy a CommSec Share Pack, you will receive six separate contract notes.
After you have bought a pack, it then becomes six individual holdings in your portfolio and you will need to manage them as you would any other shares you might own. There will be some initial administrative tasks to take care of – read more about what to do when you first buy shares.
If a company pays dividends, you will receive payments from the companies themselves on the (usually) twice-yearly dates nominated by those companies.
And if or when you decide you want to sell any of the shares purchased through a Share Pack, you will also need to do this individually.
* This information is not advice and has been prepared without taking into account your objectives, financial situation or needs. You should consider its appropriateness for your circumstances and if necessary seek appropriate professional advice