On 18th February 2025, the Reserve Bank of Australia (RBA) lowered interest rates to 4.1%—the first rate cut since November 2020. The last time this happened, we were in the middle of COVID-19, a pandemic that changed the world. Now, with inflation concerns and economic uncertainty, the RBA is using rate cuts to boost spending and investment. But what do interest rates actually mean, and how do they affect students like you?

Interest & Interest Rates

Interest is the cost of borrowing money or the reward for saving it. When you take out a loan, you pay interest to the lender. When you save money in a bank, the bank pays you interest as an incentive to keep your funds there.

An interest rate is the percentage charged (on loans) or earned (on savings) over time. For example, if you borrow $1,000 at a 5% annual interest rate, you’ll owe $50 in interest after a year.

Effects of Interest Rate Drop

Lower interest rates make borrowing cheaper, encouraging people and businesses to spend and invest more. But this has both benefits and drawbacks depending on your financial situation.

Stock Market
• Cheaper borrowing costs help businesses grow, often boosting stock prices.
• However, the ASX 200 recently dropped 4% after reaching record highs in midFebruary due to volatile market conditions.

Housing Market
• Mortgage rates drop, making home loans more affordable.
• Increased demand can drive property prices higher—in fact, home values rose 0.3% nationally in February.

Why it Matters to Us Students

Job Market & Casual Work
• Lower rates are designed to stimulate the economy, which can create more job opportunities in retail, hospitality, and finance—sectors where many students work.

Investments & Savings
• If you’re investing, lower rates can increase stock market returns, benefiting young investors.
• However, if you’re saving, banks may lower interest rates on savings accounts, making it harder to grow your money passively.

Cost of Living & Rent
• If you rent, landlords with variable-rate mortgages pay less on their loans, which could slow rent increases.
• However, if demand for rentals rises, rent prices may still stay high.

Final Thoughts

The RBA’s interest rate cut is designed to boost spending and economic activity, but it affects everyone differently. While borrowing becomes cheaper, saving becomes less rewarding. As students, understanding these shifts can help you make informed financial decisions—whether it’s managing debt, saving smarter, or taking advantage of market opportunities.