Australian banks lift interest rates

Australia's lenders will apply higher interest rates to variable mortgages in response to the Reserve Bank of Australia's (RBA) decision to hike the cash rate to an 18-year high of 4.85 per cent on Tuesday.

RBA governor Michele Bullock announced the cash rate was lifted to tackle persistent inflation in the Australian economy.

"It is going to make people feel like it's a recession because they feel poorer. Their spending can't grow very quickly because their incomes aren't growing very quickly," Ms Bullock said.

Set by the RBA, the cash rate is Australia's official interest rate charged on unsecured overnight loans between banks.

Put simply, it is how much it costs banks to borrow from each other.

When the RBA lifts the cash rate, it becomes more expensive for lenders to borrow from one another.

Banks respond to RBA

Macquarie Bank was the first to respond, telling customers it would raise interest rates across its variable-rate home loan products by 0.25 per cent within an hour of the RBA announcement, saying customers had until November 19 before the higher rate kicked in.

The next day, the big four banks all announced they would lift interest rates on variable home loans by 0.25 per cent.

"A 0.25 per cent per annum increase to variable home loan rates will increase monthly repayments by approximately $79 on a variable home loan of $500,000 for an owner occupier loan with principal and interest repayments," ANZ said in a statement.

Westpac, NAB, ANZ and CBA will apply the new rate from November 13.

Westpac's chief executive, consumer, Carolyn McCann said the majority of its customers were ahead in mortgage repayments.

In statements, all of the banks said customers under financial strain should contact their bank as soon as possible.

Boost for savers

Those with money in the right savings accounts will enjoy earning more interest when banks lift their rates in the middle of the month.

But as the ABC has revealed, banks have been slower to pass on rate rises to savers and often require customers to meet a number of conditions before they can "unlock" the highest rates on offer.

Comparison site Canstar said if those conditions were not met, customers reverted to a base rate of around 0.10 per cent.

Not using the right account, missing monthly minimum deposits or not meeting withdrawal conditions on the account could cause the rate to plummet to the base rate.