The emphasis when reporting on high interest rates is usually put on borrowers rather than savers, and that’s a correct approach.
The financial burden of higher mortgage, line of credit and loan payments is felt more deeply than the lift people get when their savings accounts and guaranteed investment certificates pay more. Who among us can absorb hundreds of dollars in extra borrowing costs per month and not have to make painful adjustments?
In a recent Carrick on Money survey, just over 50 per cent of the 2,148 participants described the impact of higher rates as catastrophic, harsh but manageable or mildly negative. Seventeen per cent said high rates had a neutral effect on their finances, while 31 per cent said high rates had either a mildly positive or quite good effect.
The survey results highlight the two-pronged effect of higher rates. Some people suffer, others see a windfall.
About 22 per cent of survey participants said they were missing out on high rates because they have nothing left to save. Forty-six per cent said they’re able to save at least a little, and 32 per cent said they’re saving lots. Three in 10 said further rate hikes would be a win for them because it would mean higher returns on savings, while 40 per cent said higher rates would be a setback or disaster. The rest said higher rates would have little to no impact.
Comments from survey participants with debts attest to the pain of rising rates for borrowers. Here’s a sample:
- We have literally nothing left to put food on our plate forget savings or buying even new clothes for our family.
- My small business loan has gone from 6 per cent to 9.25 pert cent. I am currently seeking out angel lenders who can lend me at 5 per cent so I can save on interest costs.
- HELOC [home equity line of credit] interest costs are squeezing monthly budget.
- Feeling the full brunt of increased rates. Any more increases will result in some very difficult decisions. May also need a significant increase in pay in order to maintain existing lifestyle and debt load.
- [Use of a] HELOC for a renovation could mean an additional year of work before retiring.
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Rob’s personal finance reading list
A retirement investing tip
Invest in your relationships. Research on what makes people happy in retirement finds that interaction with other people is key.
Young and thrifty
An investing blogger on the weird things he did to save money in his twenties, including camping out all night on the street to get a crack at big discounts at a store.
How to achieve financial intimacy
Five tips for getting the all-important money conversation going with your partner. I like the suggestion here to ask some ‘what-if’ questions to get a sense of where your partner stands on money-related issues. Like, what if you won the lottery?
Personal finance for middle-schoolers
A couple of years ago, back when he was 15, William Brown of Fort St. John, B.C., was a guest on an episode of our Stress Test personal finance podcast on investing. Young as he is, William knows some things about money and investing. He recently did a financial literacy session for middle schoolers in his town – here’s some media coverage.
Have you gotten bad financial advice from your bank?
Shortchanged, the Globe’s new investor protection series, was launched last month to look into the ways retail investors are mistreated in Canada. The next part in the series will look at the quality of advice that investors are getting from the big banks.
What kind of bad advice? Well, for example, three months ago, an investigation revealed that dozens of advisers at Bank of Nova Scotia’s securities arm were using improper transactions and unsuitable investments to boost their own sales figures, harming some clients in the process.
Do you feel like a bank employee has given you bad financial advice or recommended unsuitable investments? Or are you an adviser who can speak about the pressure within the banks to meet sales targets? To share your personal story, please e-mail Globe investing reporter Tim Shufelt at email@example.com
Q: I don’t understand why bond ETFs are recommended as the ‘bond’ portion of a portfolio. The ETF price has the volatility of stocks, and the investor does not have the security of face value redemption at maturity. Am I missing something?
A: These are fair points about exchange-traded funds that offer exposure to the bond market. Why use them? Because they allow you to add the diversification of the entire Canadian bond market to your portfolio in one cost-efficient purchase. Retail investors buying bonds often have to pay inflated prices, which have the effect of reducing yields. You will very likely get a higher yield from bond ETFs than you could if you bought individual bonds. Most bond ETFs don’t mature – they just keep rising and falling in price over the years according to interest rate cycles. If you need more certainty for the nonstock side of your portfolio, consider guaranteed investment certificates. Note that GICs are illiquid, whereas bond ETFs can be bought and sold like stocks.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
Make sure your bank savings accounts and guaranteed investment certificates are fully protected using Canada Deposit Insurance Corp.’s coverage calculator.
The money-free zone
In honour of his 80th birthday, the top 20 songs by Sly Stone. If you’re not familiar with Stone’s mix of soul, funk and pop, get on it. All-time great music.
Listen to this
The Weird Finance podcast in conversation with Nikita Crump, who lived in her Honda Civic for 1,000 days as a way to escape the cost of rent.
ICYMI: What I’ve been writing about
- If you’re renewing a mortgage or buying a house, the collapse of Silicon Valley Bank is the best news in ages
- Yes, there is risk in Canadian bank deposits for the unwary and complacent
- 2023 Globe and Mail ETF Buyer’s Guide Part Three: U.S. equity ETFs
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Is the middle class dead for millennials and Gen Z? • Gas prices are soaring. Are electric vehicles an affordable solution? • Crypto is booming, but should you invest? • How are young Canadians dealing with soaring rents? • Inflation is squeezing our finances. What can we do about it? • Is a hot housing market squeezing Canadians out of their small towns?
- ✔️ The housing file: How bad is housing affordability? Even a crash won't help • Sell the family home to lock in profit and then rent? Better not • Why young adults can't afford houses: Hard work got you more in the past than it does now • Five reasons you should not buy a house till you're at least 30 • Now more than ever, owning a house is not a retirement plan
- 📈 Investing: The 2022 ETF buyer's guide: Best Canadian equity funds • The 2022 Globe and Mail digital broker ranking: Does the zero-commission revolution flip the script on who's best? • With bonds sinking, conservative investors are waking up to risks they never saw coming • A five-step plan for dealing with the sad fact that almost every investment is falling lately • The best financial advice in advance of retirement? Work on your marriage • One-year GICs are the best deal in town for safety seekers • What to do if the financial plan you paid thousands for disappoints
- 💰 Your money: Are you prepared for the pandemic wealth boom to blow up in our faces? • This hard-working 24-year-old is nailing it financially. But where’s the happiness? • Who should and shouldn’t worry about the wave of rate increases this year, and what every stressed-out borrower should do right now • Don’t make this potentially costly assumption about the CPP Survivor’s pension