Gains are slowly coming back for savers

This is the first time that we have seen significant increases in interest rates and quicklypoints out Bruno Mercier, investment advisor at National Bank Financial.

At his financial institution, interest rates on high-yield savings accounts have risen from 0.25% interest rate at the start of the year to 2.4%. The rates of guaranteed placement certificates (GICs) that lock in money for a fixed period also doubled in six months.

<q data-attributes=""lang":"value":"fr","label":"Français","value":"html":"Cela fait 10 ans que je n’ai pas vu 4,6% for a CPG“,”text”:”It’s been 10 years since I saw 4.6% for a GIC””>It’s been 10 years since I’ve seen 4.6% for a CPGnotes Bruno Mercier.

The CPG were neglected for years, but they are enjoying a new popularity. In its third quarter results at the end of August, Royal Bank of Canada noted an influx of customers seeking high-yielding deposit products.

Canada Savings Bonds also offer interest rates that have risen sharply from the past decade.

As rates are tied to increases decided by the Bank of Canada and the latter has indicated its intention to continue raising the key rate, savers can expect higher interest rates in the future, believes Sébastien Mc Mahon, chief strategist at iA financial group.

Inflation plays the party pooper

Fabien Major, financial planner at Assante Capital Management, however, puts hopes of big profits in perspective. He points out that the rates, even raised, remain below inflation and that the interest may be subject to tax.

<q data-attributes=""lang":"value":"fr","label":"Français","value":"html":"Notre pouvoir d’achat s’est érodé d’environ 7% in the last year. If I have a security deposit certificate that gives me 4% and is taxable at 50%, I already have only 2 left% interest. I then apply inflation and I am in deficit by 5%”,”text”:”Our purchasing power has eroded by approximately 7% over the past year. If I have a security deposit certificate that earns me 4% and it’s taxable at 50%, I’m already left with only 2% interest. I then apply inflation and I am in deficit of 5%””>Our purchasing power has eroded by approximately 7% over the past year. If I have a security deposit certificate that earns me 4% and it is taxable at 50%, I am already left with only 2% interest. I then apply inflation and I am in deficit by 5%he explains.

Despite market volatility and worries about a possible recession, equities generally earn more if the investment is long-term.% return per year”,”text”:”Historically, the stock market offers 9% return per year”}}”>Historically, the stock market offers 9% return per yearsays Fabien Major.

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Increases in savings behind those in borrowing

Even though financial institutions follow the Bank of Canada’s hikes, the increases for savings are much slower and weaker than those for the loanalso notes Natasha MacMillan, director of daily banking services at ratehub.

During the pandemic, Canadians have saved a lot and put their money in the bank. Banks therefore do not need to increase [les taux d’intérêt] since they already have money at their disposalexplains Natasha MacMillan.

She adds, however, that savers are beginning to look for better rates and to encourage competition, which could also accelerate the rise in interest rates. Some banks already offer rates for CPG the highest in seven years.

No gains anywhere

Basic bank accounts, however, still have very low rates, under 1%. According to Sébastien Mc Mahon, it is because these accounts are not profitable for the banks.

It is above all a question of competition between the banks. Banks don’t really compete on interest rates for savings accounts that are transaction accountshe explains.

He adds that banks prefer to attract customers to savings products that tie up money for fixed periods of time.

Of course, the choice of savings product depends on what the money is being saved for and for how long. According to Sébastien Mc Mahon, an old advice from a financial planner is becoming relevant again: As we approach retirement, our age should correspond to our share of bonds in our portfolio of savings products.