It was only a matter of time, but the Bank Of Canada has finally done it – they raised their benchmark interest rate from 0.25% to 0.5%, with a subsequent increase to the prime rate.
And while that may not seem like much, it can potentially have a big impact on your finances, with promises of more rate hikes to come.
Here’s a quick overview of what the updated Bank Of Canada interest rates means.
What made the Bank Of Canada increase the benchmark rate?
When the pandemic started in 2020, the Bank Of Canada quickly slashed its interest rate 3 times – from 1.75% to 0.25%. The rate has stayed there since.
Since a recession was setting in, they cut the benchmark rate to help minimize it, as a lower rate makes it easier for people to borrow money which helps stimulate the economy.
At this point in time, things are on the rebound. The economy grew at a 6.7% annual pace in the last quarter of 2021.
Inflation is also quite high – the highest it’s been since 1991.
And as such, the rate has increased to 0.5%, from 0.25%.
These details together mean this isn’t the last rate hike we’ll likely see this year.
With that said, no one can predict the future. Who knows what turn the pandemic will take, and the current invasion of Ukraine (and all the sanctions that come with it) could definitely impact what the Bank Of Canada decides to do next.
What the rate hike means for you
What does it mean for you? Interest rates will be on the rise, both for loans and savings accounts.
Let’s start with mortgages. If you’re in the middle of a fixed rate term and locked in for the foreseeable future, for the time being there’s nothing you have to worry about. Your rate will remain unchanged until it’s time to renew your mortgage.
However, if you’re going to be renewing shortly, you’ll be seeing increased rates. In fact, most of the major banks have been slowly increasing their rates over the past few months.
If you have a variable rate mortgage, your rate will be increasing shortly along with the increased prime rate. In fact, you may have already seen some increase in your rate, even before this announcement.
With this said, you’re still going to be looking at historically low mortgage rates, they just won’t be as low as they have been.
And the same can be said for other loans – expect an increase in variable rates, and higher fixed rate options in the future.
One plus will involve savings accounts. Interest rates on savings accounts should be on the rise, as well as with things like GICs.