Canada’s biggest banks didn’t waste any time raising their prime lending rates following the Bank of Canada’s interest rate hike announcement this week. But of course interest rates on savings accounts, bonds, and GICs didn’t budge.
The key interest rate went up 25 basis points this week, bringing the overnight rate to 0.75%. Correspondingly, the big six banks raised their prime rates 25 basis points as well, bringing them from 2.70% to 2.95%. That means most lending products are going to be more expensive. Good news for the banks and their shareholders, but for most Canadians, it just means less money in their pockets.
With customers bearing the higher cost of borrowing, banks should be able to pass on at least some of the increased cash flow by offering better rates on bonds, savings accounts, and GICs. Instead, the rate hike has resulted in nothing but a profit increase for the financial sector.
Because of how long we’ve been at historically low interest rates, the market is very sensitive to rate hikes. While a 25 basis point increase won’t empty people’s wallets, the Bank of Canada’s announcement strongly suggested that more increases will be coming sooner rather than later.
It’s likely that the BoC will hike rates again before the end of the year, so consumers with high debt should manage it carefully in the coming years.