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It’s customer passivity that enables banks to treat savers like chumps.

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A reader has asked a question that I know is on the mind of anyone trying to do the right thing by saving money. "If the Bank of Canada has hiked interest rates by 0.75 of a percentage point in the last year, has there been much of an increase in savings rates from our banks?" this reader wonders. "If not, is it just more profits for them?

The short answer is no and yes. No, there has not been much of an increase in savings rates. Yes, this means more profits for the banks.

After last week's increase, the Bank of Canada's trendsetting overnight rate is a total 0.75 of a percentage point higher than it was at mid-year 2017. The online bank Tangerine has increased the interest rate on its savings account by 0.2 of a point last summer – to 1 per cent. The big banks now pay as much as 0.9 per cent on savings accounts, up from 0.5 per cent last summer.

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Interest rates on variable-rate mortgages, lines of credit and floating rate loans are adjusted immediately when the overnight rate moves higher, and by the exact same amount as the increase. Why don't savers get similar treatment? Certainly, it's good for profitability if a bank charges more to lend while making only minor increases in the interest paid on deposits. But there's a limit to how much we can blame the banks here. It's customer passivity that enables banks to treat savers like chumps.

As of early this week, savers could get 2.3 per cent from EQ Bank, 2 per cent from Hubert Financial, 1.95 per cent from Alterna Bank, 1.9 per cent from AcceleRate Financial and 1.85 per cent from Achieva Financial. When enough people migrate to these higher paying accounts, the big banks will counter with more competitive rates. Until then, expect rate increases on bank savings accounts to be disappointing.

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