Profits are slowly coming back for savers

This is the first time we see significant and rapid rate hikesstresses Bruno Mercier, investment advisor at National Bank Financial.

At his bank, interest rates on high-yield savings accounts have risen to 2.4% from a 0.25% interest rate at the beginning of the year. Interest rates on Guaranteed Investment Certificates (GICs), which tie up money for a fixed period of time, have also doubled in six months.

% pour un CPG“,”text”:”Cela fait 10 ans que je n’ai pas vu 4,6% pour un CPG”}}”>It’s been 10 years since I saw 4.6% for a GICremarks Bruno Mercier.

That GIC have been neglected for years, but are enjoying renewed popularity. In the third quarter results at the end of August, the Royal Bank of Canada noted an influx of customers looking for high-yield deposit products.

Canada savings bonds also offer interest rates that have risen sharply over the past decade.

With interest rates tied to the Bank of Canada’s decision to raise interest rates, and the Bank of Canada has announced its intention to raise interest rates further, savers can expect higher interest rates in the future, believes Sébastien McMahon, chief strategist at iA Financial Group.

Inflation plays the spoilsport

However, Fabien Major, financial planner at Assante Capital Management, puts hopes of big gains into perspective. He points out that interest rates remain below inflation even when raised, and that interest rates can be taxed.

% durant la dernière année. Si j’ai un certificat de dépôt de garantie qui me rapporte 4% et qu’il est imposable à 50%, il ne me reste déjà plus que 2% d’intérêt. J’applique ensuite l’inflation et je suis en déficit de 5%”,”text”:”Notre pouvoir d’achat s’est érodé d’environ 7% durant la dernière année. Si j’ai un certificat de dépôt de garantie qui me rapporte 4% et qu’il est imposable à 50%, il ne me reste déjà plus que 2% d’intérêt. J’applique ensuite l’inflation et je suis en déficit de 5%”}}”>Our purchasing power shrank by around 7% last year. If I have a certificate of deposit that earns me 4% and is taxable at 50%, I’m already left with only 2% interest. I then apply inflation and have a deficit of 5%he explains.

Despite market volatility and fears of a potential recession, stocks typically earn more when the investment is long-term. % de rendement par an”,”text”:”Historiquement, la Bourse offre 9% de rendement par an”}}”>Historically, the stock market offers 9% returns per yearsays Fabien Major.

Increases in savings behind those of borrowing

Even as financial institutions follow the Bank of Canada’s hikes, increases in savings are much slower and less steep than loans, notes Natasha MacMillan, director of banking services at the daily in ratehub.

During the pandemic, Canadians saved a lot and put their money in the bank. So banks don’t have to top up [les taux d’intérêt] since they already have money availableexplains Natasha MacMillan.

However, she adds that savers are starting to look for better interest rates and encourage competition, which could also accelerate the rise in interest rates. Some banks already offer tariffs for GIC the highest in seven years.

No profits anywhere

However, basic bank accounts still have very low interest rates, below 1%. According to Sébastien McMahon, it is because these accounts are not profitable for the banks.

It’s all about competition between banks. Banks don’t really compete on interest rates for savings accounts, which are transaction accountshe explains.

He adds that banks prefer to lure customers with savings products that tie up money for specific periods of time.

The choice of savings product naturally depends on what you are saving for and for how long. According to Sébastien McMahon, old advice from a financial planner is relevant again: As we approach retirement, our age should match our proportion of bonds in our portfolio of savings products.

Leave a Comment