General advice warning:
This newsletter does not take into account any person’s objectives, financial situation or needs, and is not personal financial advice. Interest rates, investment returns and loan repayments vary, and election counts and policy details may continue to change. Please consider your own circumstances and seek appropriate professional advice before making financial decisions.
Who wins and who loses when interest rates rise + What the US midterm results mean for Australian investors
One rate rise, two very different stories
Interest rates affect Australians very differently. When rates rise, one household tightens its belt while the household next door gets an income boost. Good or bad for whom?
A household with a large variable-rate mortgage can feel an immediate reduction in disposable income, while a debt-free retiree holding cash and term deposits may receive more income. Businesses, investors, property developers and governments also sit on different sides of the interest-rate equation.
So don’t ask only whether higher rates are good or bad. Ask who is borrowing, who is saving, who is lending, and who is exposed to changes in asset values and consumer demand. The place to start is your own balance sheet.
Why rate rises ripple through the economy
Higher interest rates make borrowing more expensive and saving more attractive. That’s the point: they help slow consumer demand.
Households with loans have less cash available for other spending. Businesses may delay investment, expansion or hiring. Property buyers may qualify for smaller loans. At the same time, savers and investors in some interest-bearing assets may earn more.
But the pain and the gain aren’t shared evenly. The impact depends on the size and type of debt, the level of savings, whether rates are fixed or variable, and how sensitive a household or business is to changes in asset values and consumer spending.
Who may come out ahead
1. Retirees with substantial cash savings
For debt-free retirees, higher deposit rates mean more income to cover living costs, and less need to sell investments to fund them.
Example: $500,000 earning 2% pays $10,000 a year in gross interest. At 5%, it pays $25,000. That’s $15,000 more, before tax.
2. People approaching retirement
For debt-free retirees, higher deposit rates mean more income to cover living costs, and less need to sell investments to fund them.
Example: $500,000 earning 2% pays $10,000 a year in gross interest. At 5%, it pays $25,000. That’s $15,000 more, before tax.
3. Term-deposit investors
Term deposits offer a known rate and a known maturity value, with no sharemarket swings. They’re useful for matching savings to planned spending. But the rate is only part of the picture: maturity dates, access conditions, tax and inflation matter too.
Example: Rather than locking up $300,000 in one go, a retiree could spread it across three maturity dates, so money comes free at regular intervals.
4. Investors in floating-rate income investments
Some credit and fixed-income investments pay income that resets with market rates, so payments rise as rates do. That’s different from long-term fixed-rate bonds, whose value can fall when yields rise.
Example: A floating-rate security paying a set margin above a short-term benchmark pays more as that benchmark climbs.
5. Home-deposit savers
A deposit grows faster, and fewer competing buyers can take some heat out of prices. The catch: higher rates also shrink how much you can borrow.
Example: A buyer earns more on a $100,000 deposit, but the bank’s serviceability test now approves a smaller loan.
6. Cash buyers of property or businesses
When borrowing gets expensive, cash buyers face less competition and gain bargaining power, especially with a seller who wants a certain settlement.
Example: A cash buyer of a small commercial property can offer a quicker settlement than someone still waiting on loan approval.
7. Income-focused investors
Cash, term deposits and parts of the bond and credit markets look more attractive next to riskier assets. You may be able to meet some income needs without taking on as much risk.
Example: An investor who bought higher-risk shares mainly for their dividends may now get part of that income from defensive assets instead.
8. Some banks
Banks can do well when loan income rises faster than what they pay depositors and lenders. But it’s not guaranteed. Competition for deposits, dearer wholesale funding, slower lending and bad debts can all eat into the gain.
Example: A bank’s margin may widen at first, then narrow as it raises deposit rates to keep customers.
9. Insurers and other large institutional investors
Institutions with big defensive portfolios can reinvest maturing securities and new cash at higher yields. The benefit builds over time, though existing long-term holdings may dip in value along the way.
10. Debt-free new retirees
People retiring with no debt and plenty in interest-bearing assets are among the clearest winners. Their income goes up; their repayments don’t.
Example: Two retirees with identical super balances can have very different experiences if one owns their home outright and the other still has a mortgage.
Who may feel the squeeze
1. Homeowners with large mortgages
Variable-rate borrowers feel it fast. The bigger the loan relative to household income, the harder it bites.
Example: On a $750,000 principal-and-interest loan with 25 years to run, a rise from 5.5% to 6.5% lifts monthly repayments from about $4,606 to about $5,064. That’s roughly $458 more a month, or $5,500 a year.
2. Younger families
A big mortgage often sits alongside childcare, school fees, insurance, groceries and transport. There’s far less slack to absorb higher repayments than in an older, debt-free household.
Example: Finding an extra $450 a month might mean fewer dinners out, a skipped holiday, or pausing private health cover or voluntary super contributions.
3. First-home buyers
Falling prices don’t automatically mean better affordability. Higher rates cut borrowing power, raise repayments and make the bank’s affordability tests harder to pass.
Example: A home might drop $40,000 in price, while the buyer’s borrowing capacity drops by even more.
4. Property investors with debt
Holding costs rise. A property that needed a small cash top-up can quickly become a much bigger annual commitment. Tax deductions soften the blow but don’t fix the cash flow.
Example: A one-percentage-point rise on a $600,000 interest-only loan adds about $6,000 a year in interest, before tax.
5. Property developers
Developers get squeezed from both ends: project finance costs more, and buyers can borrow less. Slower sales mean paying interest for longer, which erodes margins further.
Example: A six-month delay adds finance, holding and marketing costs while finished apartments sit unsold.
6. Small businesses carrying debt
Overdrafts, equipment finance and business loans all cost more, just as customers start cutting back.
Example: A café pays more on its coffee machine finance while mortgage-stressed regulars drop in less often.
7. Retailers and discretionary businesses
When more of the pay packet goes to the bank, less goes to restaurants, furniture stores, travel and entertainment.
Example: A family puts off the new lounge suite or cancels a holiday to cover higher repayments.
8. Highly geared companies
Companies with heavy debt face a jump in interest costs when loans or bonds roll over. That leaves less for profits, dividends and investment, and less room to manoeuvre if conditions worsen.
Example: Refinancing $100 million at a rate two percentage points higher adds $2 million a year in interest.
9. Owners of highly valued growth assets
Higher rates change how investors value future profits. A sound business may be worth less on paper simply because its profits are expected many years from now.
Example: A growth company valued mainly on profits five or ten years out is usually more rate-sensitive than a mature company generating strong cash flow today.
10. Governments carrying substantial debt
Government debt doesn’t reprice overnight. The pressure builds as cheaper old bonds mature and are replaced with dearer new ones. Over time, interest eats up more revenue, leaving less for everything else.
Home loans: 1998 vs today
Same rate, very different repayment
The interest rate alone doesn’t tell the whole story. As the comparison below shows, a much bigger loan at almost the same rate produces a much bigger repayment.
In short: $120,000 at 6.50% over 25 years meant repayments of about $810 a month. Today’s average $731,000 loan at 6.56% over 30 years costs about $4,650 a month. That’s roughly $3,840 more, or 5.7 times the repayment, at almost the same rate.
The 1998 loan is illustrative; the 2026 figure uses the reported average new owner-occupier loan. Loan terms also differ, so treat this as a repayment illustration rather than a full measure of affordability.
Two neighbours, two very different outcomes
Picture two neighbours. One is 40, with an $800,000 mortgage, two kids and very little cash. The other is 72, owns her home outright and has $800,000 in cash and term deposits.
Rates rise by one percentage point. The first household now has to find thousands more each year in repayments. The retiree receives around $8,000 more in gross interest.
Neither is doing anything wrong. They’re simply on opposite sides of the interest-rate equation.
What this means for retirees
Being retired doesn’t automatically make higher rates good news. Being debt-free with cash may work in your favour; carrying a mortgage, investment loan or other debt may work against you. The answer lies in your whole household balance sheet.
Start with three questions:
- How much do I owe?
- How much do I hold in cash and interest-bearing investments?
- How much do I rely on investment income to fund my lifestyle?
A better term-deposit rate helps with today’s bills. But retirement can last 20 or 30 years. Tax, inflation, future spending, access to your capital and the risk of outliving your savings all still matter. A good deposit rate on its own isn’t a reason to move everything into cash or give up on long-term growth.
It helps to think about when you’ll need the money. Cash can cover near-term spending. Term deposits or other defensive investments can suit known medium-term needs. And appropriate growth investments can support spending further down the track. The right mix depends on your goals, circumstances and comfort with market ups and downs.
So the real question isn’t whether higher rates are good or bad. It’s what they mean for you. Borrowers pay more for money; savers and investors who lend it out earn more. Knowing which side you’re on can make a real difference to your retirement plans.
What the US midterm result means for Australian investors
The same “which side are you on?” lens helps make sense of US politics. The midterms matter to Australian investors not for the headlines, but for what they could do to interest rates, company profits, global trade and currencies.
What changed?
The Democrats have won control of both the House and the Senate, while Donald Trump remains President. This was a congressional election, not a presidential one. From January, the White House and Congress will be run by different parties.
Republicans went in holding the House 218–214 and the Senate 53–47. The swing was bigger than usual: a president’s party typically loses about 26 House seats and four Senate seats at a midterm. This result drew comparisons with 2010 and 2006. Voters were focused on the cost of living, especially tariffs and rising energy bills.
Think of it as a CEO and a board pulling in different directions. Big changes get harder, and compromise becomes the name of the game. Expect fewer sweeping new laws, and more public fights over spending, debt and government funding.
How markets reacted on the day
Markets had largely expected a Democratic win, so the size of the victory was the main surprise. US shares rallied, but the winners and losers differed sharply by sector:
| Sector | 1-day move (Wed 4 Nov) | Why it moved |
|---|---|---|
| AI power and data-centre suppliers | Down sharply: Vistra -13.8%, Vertiv -9%, Nvidia -3.2% | Slower data-centre build-out and tighter rules expected |
| Defence | Down: Lockheed Martin -6.9%, Northrop Grumman -4.5% | The US$1.5tn defence budget request is unlikely to pass |
| Big US tech (Microsoft, Amazon, Alphabet, Meta) | Up: Microsoft +6.7%, Amazon +6.1% | Less pressure to overspend on AI; existing data centres favoured |
| Consumer discretionary | Up 4.3%, the best S&P 500 sector | Tariff relief expected; oil down 8% |
| Healthcare | Up 3.1% | More healthcare funding expected |
| S&P 500 overall | Up 1.6% | Broad relief rally; Dow up 3.0%, its best day since April 2025 |
Source: Quilla. One-day moves only, and they can reverse.
The message: markets welcomed fewer policy surprises. But political change rarely drives long-term returns. Company profits, valuations and the economy usually matter more.
Five risks to watch
- Budget battles and market jitters. In the short term, watch for stand-offs over government funding and the US debt ceiling. Even when a deal is eventually struck, the uncertainty along the way can rattle share and bond markets.
- US debt keeps climbing. A new Congress doesn’t fix America’s large budget deficit. The International Monetary Fund (IMF) expects government debt to keep rising, which could push long-term interest rates higher.
- Higher rates can hit expensive assets. Rising bond yields can weigh on highly valued technology shares, property trusts and infrastructure companies. It’s the same principle as at home: investors may pay less today for profits they expect years from now.
- Tariffs and trade tensions aren’t going away. Divided government may slow new laws, but the President still has plenty of sway over tariffs, regulation and foreign policy. For Australians, the key links are China, commodity demand and global trade. Congress may try to challenge or soften some tariffs. Easing could help consumer goods and car makers, and ease imported inflation.
- Currency swings can change your returns. If you hold US shares, the share price is only half the story. A stronger Australian dollar shrinks your overseas gains when converted back home; a weaker one boosts them.
Five opportunities to consider
- Fewer policy surprises. When neither side can easily pass major laws, sudden tax or spending shake-ups become less likely. Historically, markets have often looked past midterm noise and refocused on profits and interest rates.
- Defensive assets earn their keep again. With US short-term rates around 3.75% to 4.00%, cash and high-quality short-term bonds offer real income, unlike the near-zero years. For retirement portfolios, that makes defensive assets part of the opportunity, not just the safety net.
- The economy beneath the headlines. Politics is only part of the picture. The IMF expects US growth of about 2.4% in 2026, supported by productivity and investment. The resilience of many US companies still matters most.
- AI, power and infrastructure. The AI story reaches well beyond the tech giants, into data centres, electricity networks, cooling, semiconductors and critical minerals. That could open doors for Australian resources and infrastructure businesses. One catch: electricity prices were an election issue, and tighter rules on data centres could slow the build-out, mainly beyond 2028. The theme remains intact but expect more difference between winners and losers.
- Volatility can create better entry prices. Political scares can temporarily drag good assets down. For investors with a plan, a cash buffer and a diversified portfolio, those moments can be a chance to rebalance rather than panic.
The bottom line
In short, this looks like a political reset, not an economic reset. US growth is expected to stay resilient. Watch for a government shutdown, messy FY27 budget talks and tougher limits on AI infrastructure.
There’s plenty still to play out, and time will tell how well the two sides work together. Grab the popcorn but keep your investment plan in view. For each new development, ask: what does this mean for company profits, interest rates, currencies, and the income I need to fund my lifestyle?
Sources and important information
Sources: Ballotpedia election results (4 Nov 2026); US Federal Reserve statement (28 Oct 2026); IMF 2026 US Article IV review (2 Apr 2026); Reserve Bank of Australia speech on the US dollar (7 Mar 2026); Morgan Stanley midterm analysis (22 Jul 2026); BlackRock Investment Institute bulletin (3 Nov 2026). Quilla, US Midterms 2026 Update.
