Rising interest rates are usually framed as a blow to borrowers because that’s the point of making mortgages, loans and credit lines more expensive. The Bank of Canada to consumers: Please stop consuming.
But rising rates also put upward pressure on returns for savers and cautious investors who favour guaranteed investment certificates. The question I ask after every increase in the Bank of Canada’s overnight rate is how soon a reader will get in touch to ask when savings and GIC rates will move higher.
The answer is within a day or so in some cases. The Bank of Canada announced a 0.25-of-a-percentage point increase in the overnight rate at 10 am on Wednesday. By the end of business Thursday, exchange-traded fund companies had published rates for their high interest savings ETFs that reflected this latest rate hike. Rates on these ETFs are now in the area of 5 per cent after fees - some funds a bit higher, others a touch lower.
As inflation inches closer to 3%, economists warn progress will stall this year
In GIC-land, there’s been minimal reaction to the Bank of Canada’s move. But that’s because GIC rates jumped in June and early July in anticipation of the central bank rate hike that materialized this week.. Rates as high as 5 to 5.6 are now available on GIC terms of one through five years from a growing number of alternative banks, and from big banks in limited “special offer” situations.
Investment saving accounts hadn’t moved by Friday morning, but that’s typical because these savings account products packaged like mutual funds can take a week or more to adjust to rate increases by the Bank of Canada. I can’t wait to see how quickly they lower rates when the central bank shifts into reverse.
Late this week, investment savings accounts paid 4.3 to 4.6 per cent in the Series A version widely available through online brokers. A cheaper Series F version, which only some brokers offer to their clients, paid as much as 4.75 per cent.
Interest rates available from conventional high rates savings accounts available through banks moved higher through June and early July, but not by much. If there’s any reaction to the latest move by the Bank of Canada, expect it to be minimal. As of late this week, five alternative banks were offering 3.5 per cent to 4.1 per cent.
Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.
Rob Carrick