Higher interest rates tend to mean better savings. How to take advantage
As the Bank of Canada’s interest rates hikes ratchet up the pain on borrowers, traditional wisdom says better savings rates might follow.
But experts say it’s not a sure thing that savings will grow in a higher rate environment, and consumers ought to be nimble if they want to take advantage of competition in banking.
The Bank of Canada’s target for the overnight rate has risen 4.75 percentage points since March 2022 in an effort to raise the cost of borrowing and take the steam out of rampant inflation.
Shannon Terrell, lead writer and spokesperson at NerdWallet Canada, says that when the central bank policy rate rises, “we tend to see higher interest rates on savings products like guaranteed investment certificates (GICs) and high-interest savings accounts (HISAs).”
“But I will say that the relationship between higher borrowing costs and increased savings rates isn’t always linear,” she tells Global News.
While banks are quick to pass on hikes in interest rates to their borrowers, Terrell says financial institutions can be “a little bit slower” to offer higher savings rates.
Banks aren’t obligated to raise their rates on HISAs when the central bank rate increases, she notes, but might do so to attract more depositors if they’re in need of additional funds to invest.
At that point, it’s a matter of competition dynamics: other banks will be pressured to raise their HISA rates if one player is raising their own to lure more customers.
Global News reached out to Canada’s Big Six banks — TD Bank, RBC, Scotiabank, BMO, CIBC and National Bank — to ask them about how their savings rates have changed over the course of Bank of Canada’s tightening cycle.
CIBC saw its rates increase on all savings accounts after the latest Bank
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