Students are to research & compare fixed interest rates versus variable interest
rates over the last 10 years in Australia, to find out if you would have been better
off on a fixed rate or a variable rate.
Fixed Interest Rates vs Variable Interest Rates Over 10 Years
Historical Data of Variable Interest Rates
The data set includes all the variable interest rates and quarterly inflations rates since 1959. From this
graph we can see that there has been many points of which inflation has greatly increased and thus
results in a higher variable interest rate. This is both apparent in 2021 when the global pandemic was on
full scale and in 1970 the great inflation occurred. These factors greatly increase the variable interest
rate thus resulting in a better fixed interest rate instead. The past ten years, we have seen a gradual
decrease in variable interest rate followed by an astounding spike in inflation and variable interest rates.
The variable interest rate reached a peak of 7.8% in 2023 and is predicted to continue to rise with a
possible recession following in Australia’s economic activities.
Comparing the historical interests between a fixed and variable interest rate we can see that there has
been a drastically split since the past 10 years in 2010. In comparison, variable interest rates and fixed
interest’s rates have drifted further and further apart, with variable interest rates being significantly
higher than a fixed interest rate. In 2015, the difference between the two interest rates were around 22.5%. In 2020, we see a huge decrease in fixed interest rates falling to around 2.5% and then rising along
with variable interest rates to 6.4% and 7.6% respectively. Currently, as of August 2023, fixed interest
rates have been increased to 6.65% of a 3-year bank lend rate. Despite the heavy rise in both a 3-year
fixed interest rate and a variable interest rate, variable interest rates are still significantly higher than a
3-year fixed interest rate.
Historically speaking, both interest rates have been quite similar with 3-year fixed interest rates even
being higher than variable interest rates at given points. In 1995, 3-year fixed interest rates were
significantly higher than variable interest rates with a 2% marginal difference between the two types of
interest rates. Following the next 5 years, the interest rates were very similar. However, following the
increasing inflation in Australia, variable interest rates are evidently performing worse than fixed
interest rates followed by the past 10 years of evidence.
Evidently, a fixed interest rate has been significantly better than variable interest rates in the past 10
years. Fixed interest rates have stayed below variable interest rates marginally and will be further
predicted to do so. It would be better to stay at a fixed interest rate which can save upon 1-2.5% of
interest rates compared to a variable interest rate.