How do interest rates affect you?

Interest is the amount that must be paid when you borrow, or a form of income from your savings when you invest. Financial systems are built on this relationship, and it affects us every day.

Rising interest rates means that borrowing money could be more expensive, but you could also earn more on your savings. The interest rate paid on these loans and investments are typically influenced by the overnight rate set by the Bank of Canada (BoC).

The Bank of Canada is our central bank, and its primary function is "to promote the economic and financial welfare of Canada.” The overnight rate is reviewed several times throughout the year and adjustments are made based on the economy’s performance and inflation forecasts. Based on this benchmark rate, each financial institution will set its own prime rate which is the rate they use when lending to consumers with the highest credit rating. Lending rates and some investment products, like prime-linked GICs, are based on this prime rate so any adjustments up or down will impact the interest calculated for these financial products.

No matter which side you are on, either borrowing or lending, interest rates will affect you.

• Low interest rate benefits:
  • Borrowers can benefit from lower lending rates. For example, consolidating higher interest rate loans and credit cards into a personal line of credit (on approved credit) with a more favourable rate can save money in the long run. This could help pay your debts off faster through refinancing.
• High interest rate benefits:
  • Investors can benefit from higher savings account and GIC rates. A high interest savings account, or a guaranteed investment certificate (GIC) will get a better return on the money you deposit. Having your investments earn interest is a key part of growing your savings.

The economic environment is becoming increasingly complex. A financial advisor can help navigate financial shifts, such as increasing interest rates, to make the most out of your savings.

Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc.