How Repo Rate Increases Impact Retirement Savings

South Africa’s central bank has increased the repo rate. This increment is set to impact the country’s economy in several ways including the retirement savings invisals have been building up.

The South African Reserve Bank’s Monetary Policy Committee (MPC) has increased the repurchase rate (repo rate) by 75 basis points. This increase sees the repo increase to 6.25% per year from 23 September 2022.

The MPC decision to increase the repo rate for the fifth consecutive time is aimed at controlling inflation. However, the decision made by the MPC will impact citizens living in the country in various ways.

Individuals who have debt will face an increase in the debt repayments they will have to make going forward. This includes individuals who have home loans, car loans and credit card debts.

However, the increase to the repo rate could have a positive impact on savings and investments. Netbank explains that the repo rate increase means a higher return on investments and savings, which could help individuals achieve their investment and saving goals earlier.

Liberty’s Daphne Rampersad says fluctuations in the interest rate can impact your savings. However, this depends on the retirement plan an individual has.

Retirement plans are individualistic and the impact of the repo rate increments will affect individuals differently based on their age, their retirement plan and whether they are close to target retirement age.

Rampersad revealed that three guidelines should be considered when making decisions concerning your retirement and savings.

Patience is an important guideline as interest rate adjustments will not immediately impact your retirement portfolio. They may take several months or up to a year to have a serious impact on your portfolio.

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Individuals should consider their retirement timeline. Knowing when you plan to retire will influence the steps you need to take. This as interest rate changes will have a greater impact if you are close to retirement and could have less of an impact if your retirement age is further away.

Rampersad explained, “If interest rates increase today you’ll see that it will increase bond yields, it’ll have a significant impact on your savings account and that’s great if you you’re close to retirement, but the further away you’re from retirement, again you should not be hasty with those decisions”.

They add that understanding volatility is also crucial and indicated that individuals should have a diverse investment portfolio.

Individuals who are uncomfortable with the interest rate hikes or are unsure about their course of action should contact a financial advisor.

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