The Bank of Canada’s rate cut earlier this month has rippled through the universe of products for savers and, so far, the damage is minimal.
Stay tuned, though. The bank has four more opportunities to adjust rates in 2024 and cuts in the trend-selling overnight rate are likely to occur in at least a few of them. The cumulative effect will require a re-think if you’re holding a lot of cash in your bank or investment accounts.
The overnight rate dropped 0.25 of a percentage point on June 5 and yields on some cash parking spots for investors have followed along. Example: Returns on investment savings accounts, which are savings products for investors that trade like a mutual fund, have declined to 4.25 to 4.5 per cent from 4.5 to 4.75 per cent. As always, there’s some variation between issuers. The BMO High Interest Savings Account offered 4.5 per cent as of late this week, compared to 4.3 per cent for similar products from Royal Bank of Canada, Toronto-Dominon Bank and Renaissance and 4.25 per cent for the Manulife version.
Yields on high interest savings account ETFs remain in the 4.6 to 4.8 per cent range, down modestly for the most part since the Bank of Canada’s move. T-bill and money market funds have clung to the high 4 per cent threshold so far, but expect modest declines in the weeks ahead.
All of these rate changes help guide expectations for cash parking spots through the rest of the year. Any move by the Bank of Canada will weigh on returns. Four more cuts in the overnight rate this year would bring down rates on investment savings accounts to as little as 3.25 per cent, which reduces their attractiveness if you use them as anything other than a short-term hold.
So far, rates on savings accounts offered by alternative banks have barely registered the decline in the overnight rate. You could still get 4 per cent returns from several players as of late this week, including Motive Financial, Neo Financial and Wealthsimple.
GIC rates have slowly backed off since the Bank of Canada rate cut. You can still get 5 per cent returns for a one-year term from a half a dozen or so providers, and for two years from a few.
-- Rob Carrick, personal finance columnist
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What’s up in the days ahead
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Compiled by Darcy Keith of The Globe and Mail