237) Effect of Lower OPR

237) Effect of Lower OPR

Overnight Policy Rate (OPR) is an Overnight interest rate set by Bank Negara Malaysia. This overnight policy rate or interest rate is a rate a borrower bank has to pay to a lending bank for the funds borrowed. Basically, it is the banks' borrowing interest rate charged.

What is the effect of LOWER OPR to your financials?

The effect can be positive (good), neutral or negative (bad) depending on where is the money.

LOANS

1) Property/Housing Loan

You borrow from the banks to finance your property (house, condo, flat, etc). Your interest charged will be lower as the bank will charge you lower interest rates. Normally, you can pay a lower monthly installment. If you pay the same installment amount, you can fully paid your loan faster.

However, if your interest rate is the fixed rate type, then there will be no effect to you.

2) Car Loan

Your existing car loan interest rate was already fixed when you took the loan. So, there will be no effect. However, if you are planning to take up a new car loan, then the interest rate will be lower.

3) Outstanding Credit Card Balance/Credit Card Loan

The Credit card interest is fixed. Normal standard rate is at 18%. YES, it is very HIGH. So, please clear your credit card debts as soon as possible. Make your credit card repayments in full every month to avoid paying a high interest rate.

SAVINGS

4) Fixed Deposit

Saving money in the Fixed Deposit gives you fixed interest until the maturity period. When there is a change of OPR, the interest rate remains the same. The interest rate will only change upon the tenure renewal. Placing new Fixed Deposit will be give you the new interest rate. When the Interest rate is lowered, you will get lower returns.

If you save in the Fixed Deposit and depend on the interest to finance your expenses you will get lower amount.

5) Savings Account

Placing money in the Savings Account gives you liquidity to withdraw without any restrictions like in a Fixed Deposit. When the OPR is reduced, your interest amount will also be lowered. With the already low interest rate environment, the negative effect will be minimal.

INVESTMENTS

6) BOND FUND

Placing money into a Unit Trust bond fund will be give you a higher investment amount when the interest rate is lowered. This is because bond value moves opposite to interest rate direction. When the interest rate is lowered, bond yield is also lowered. As income from bond is fixed, the bond value will increase.

More details at:
Bond Price Moves Opposite to Bond Yields
https://highlevelrules.blogspot.com/2017/06/bond-price-moves-opposite-to-bond-yields.html

Unit Trust Bond Fund Vs Fixed Deposit
http://highlevelrules.blogspot.com/2017/07/unit-trust-bond-fund-vs-fixed-deposit.html

7) MONEY MARKET FUND

Money invested into a Money Market Funds are placed into Money Market Instruments. For easy understanding, Money Market instruments are like Fixed Deposits. Therefore the effect is similar to the money placed into the Fixed Deposits. When the interest rate is lowered, the returns will also be lower after the Fixed Deposit tenure is completed. Renewal of tenure will get lower interest rates.

More details at:
Money Market Fund vs Bond Fund
http://highlevelrules.blogspot.com/2017/07/money-market-fund-vs-bond-fund.html

Money Market Fund vs Fixed Deposit.
http://highlevelrules.blogspot.com/2017/06/money-market-fund-vs-fixed-deposit.html


Summary for Effect of Lower OPR

A) GOOD NEWS
- Housing Loan repayment (flexible rate loan)
- Investment into Bond Funds
- New Car Loan

B) NEUTRAL NEWS
- Existing Car Loan
- Credit Card Loan

C) BAD NEWS
- Savings Account
- Fixed Deposit Accounts
- Investment into Money Market Funds

Please contact and discuss with your Financial Consultant on the financial options available for you.