If you’ve ever seen the headlines after a Bank of Canada meeting and wondered, “what does this actually mean for me?”—you’re not alone. While we all hear about rate hikes and cuts, the bigger questions are: why do these changes happen and how do they affect your finances?
Let’s break it down today so you can stay ahead of the curve.
What Are the Bank of Canada Meetings?
Eight times a year, the Bank of Canada (BoC) meets to review and set the country’s key interest rate—also known as the overnight rate. This rate influences how much it costs banks to borrow money from each other, which can then impact things like mortgage, loan, and financing rates.
At each meeting, the BoC analyzes factors like inflation, employment rates, economic growth, and global markets to decide whether interest rates should go up, down, or stay the same. Their goal? Keep inflation under control while supporting economic stability.
What Rate Changes Are Being Altered?
The BoC’s overnight rate is the primary focus, but this decision influences many areas of your financial life:
- Variable Mortgage Rates: If the BoC raises rates, mortgage payments on variable-rate loans go up. If rates drop, payments may decrease.
- Fixed Mortgage Rates: While not directly tied to the BoC’s decision, fixed rates tend to shift based on how bond markets react to interest rate changes.
- Borrowing: The cost of borrowing in the form of loans, lines of credit, vehicle financing etc, become more expensive when rates rise and less when they fall.
- Savings & Investments: High-interest savings accounts and Guaranteed Investment Certificates (GICs) tend to offer better returns when rates increase and lower returns when rates decrease.
What Do the Rate Changes Mean for You?
The BoC adjusts rates to either slow down inflation and spending (by raising rates) or encourage borrowing and economic growth (by lowering rates). Here’s a quick summary of what that means for your finances:
If rates increase:
- Borrowing gets more expensive. Mortgage payments, loan interest, or vehicle financing will likely cost more.
- Savings accounts and GICs may see better returns. Higher rates encourage banks to pay more for deposits.
- The real estate market could slow down. Higher mortgage rates make homebuying less affordable, which can reduce demand.
If rates decrease:
- Borrowing becomes cheaper. Mortgage payments, vehicle financing, and credit lines may become more affordable.
- Savings account interest rates may drop. Your bank might offer lower interest on deposits.
- Investments could see a boost. Lower rates encourage spending and economic growth, which could potentially benefit the markets and businesses.
Do All Banks Change the Same Numbers?
Not necessarily. While the BoC sets the overnight rate, each bank decides how much of that change gets passed down to consumers. Some adjust their prime rate (which affects mortgages, loans, and lines of credit) immediately, while others take a more gradual approach.
This is why it’s always a good idea to compare rates across different banks and understand how changes might affect your assets, and much more.
Your Next Steps?
Stay on top of the changes and how they might affect your investments, loans, etc. The BoC meetings impact everything from mortgages to everyday spending, so having a plan is key to staying financially secure moving forward.
Wondering how these changes might affect your finances even further? Lets talk. We are happy to help create a financial strategy to suit your personal ambitions or business goals.
