Get a free, no obligation personal loan quote with rates as low as 6.99%
Get Started You can apply with no effect to your credit score

The spread of COVID-19 has impacted the Canadian economy in many ways. It’s caused a decline in tourism, a disruption in the import and export industry, an increase in consumer debt, a decrease in business activity and an overwhelming health crisis. As a result, the economy has been adversely affected. In an effort to help Canadians and businesses affected by COVID-19, the Government of Canada introduced a number of financial support programs. Similarly, the Bank of Canada has slashed its interest rate to 0.25% to help the economy’s recovery. This is particularly significant for Canadians who are looking to borrow, save, or invest. 

Bank Of Canada Interest Rate

As mentioned the Bank of Canada has slashed the benchmark interest rate to a historical low due to COVID-19. According to a recent announcement by the Bank of Canada, the 0.25% interest rate is expected to hold until 2023. The Bank of Canada explained that they plan on holding “the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved.” 

Isn’t The Economy Doing Better? 

Despite the recent development of the COVID-19 vaccine, the increasing oil prices, and the general rebound of the economy in the third quarter, the Bank of Canada knows that the amount of uncertainty many Canadians and businesses are facing is unusual right now. Moreover, with the recent uptick in COVID-19 cases and the increasing restrictions, it is bound to stagnant growth. The decrease in rate is expected to support the economy’s recovery by boosting consumer spending and business activity as the slashed interest rate provides Canadians and Canadian businesses with access to cheaper capital.

What Does This Mean For Canadians? 

When the Bank of Canada lowers its interest rate, banks too reduce their interest in terms of lending, saving, and borrowing. Here are a few ways the lower Bank of Canada interest rate can affect Canadians: 

Mortgages

When the Bank of Canada reduces its interest rate, big banks follow suit by reducing their prime rate. Since March of 2020, the prime rate in Canada has dropped from 3.45% to 2.45%. This in turn affects the cost of borrowing for mortgages. 

For example, when you apply for a variable rate mortgage, the rate you are offered is based on your bank’s prime rate which is affected by the Bank of Canada interest rate. So if you have a variable rate of prime minus 0.20%, you’ll be paying 2.25% – 0.20% (= 2.05%) as opposed to 3.45% – 0.20% (= 3.25%). The lower the prime rate the less you’ll pay in interest. This, in turn, makes homeownership more affordable and accessible. Similarly, if you’re currently looking for a mortgage, you can opt to secure a lower rate for the next 5 years. If you already hold a fixed-rate mortgage, you may want to consider refinancing. 

Refinancing

With interest rates slashed to near 0%, Canadians can take advantage by refinancing their debts. Many Canadians have been thinking about refinancing their mortgages. Despite the penalty of cancelling a contract early, the interest savings you receive from refinancing may be well worth it. Moreover, if you’ve been looking to borrow money, now is an ideal time as the low-interest rate also affects other credit products like variable loans and lines of credit

It’s important to note that, while the Bank of Canada interest affects mortgages, variable loans and lines of credit, it usually does not affect fixed-rate debts like credit cards.

Borrowing to Invest 

Borrowing to invest is always a risk due to the volatility of the stock market. However, according to the Globe and Mail, borrowing at the current rates means your probability of earning a profit from borrowing to invest is higher as the “break-even rate of return declines as well”. Overall, it’s important to do your due diligence and invest according to your risk tolerance. Diversifying your investments and starting with a long-term investment can help soften the effects of any short-term volatility. 

New to investing? Check out these robo-advisors.

Saving

Unfortunately, while the slashed interest rate decreases the cost of borrowing it also decreases the earn rate on saving accounts. You may have noticed that many financial institutions have cut their high-interest savings account rate by as much as 50% since the start of the pandemic. So, while you may have an easier time finding affordable credit, you may see a slump in your savings. 

Bottom Line

With rates at historically low levels, Canadians can use these interest rate cuts to their benefit. If you’re looking to borrow money, now is one of the best times. You can expect the rates to remain low until 2023 when inflation rates are expected to reach the targeted 2%. However, it’s important to stay up-to-date with the news as the rate changes along with the economy’s recovery. As such, if the inflation rate reaches 2% before 2023, the Bank of Canada is likely to raise the interest rate.  

Priyanka Correia avatar on Loans Canada
Priyanka Correia

Priyanka Correia is a Marketing Coordinator and personal finance expert at Loans Canada. Priyanka completed her Bachelor's degree in Marketing at Concordia University and has published work that has been mentioned in various news media. She is passionate about money management and educating Canadian consumers about how to take control of their financial lives.

More From This Author

Special Offers

More From Our Experts

https://loanscanada.ca/wp-content/uploads/2021/12/Canada-Fed-Deposit.png
Canada Fed Deposit: Payment Dates And Eligibility 2023

By Corrina Murdoch
Published on September 20, 2023

The Canada Fed Deposit or EFT Credit Canada appears on a bank statement. It happens when the federal government pays the CCB, CWB and

https://loanscanada.ca/wp-content/uploads/2023/09/CBSA-SALARY.png
The Best Paying Jobs With The Government: No Degree Required

By Lisa Rennie

Are you looking for a high paying job but don't have a degree? Check out the CBSA salary and other government jobs.

https://loanscanada.ca/wp-content/uploads/2020/12/new-credit-card.png
Neo Credit | Neo Financial Credit Card Review

By Corrina Murdoch

The Neo Financial Credit Card makes both spending and saving rewarding for Canadian consumers, regardless of their financial health.

https://loanscanada.ca/wp-content/uploads/2018/06/Alternative-Mortgage-Financing.png
Alternative Mortgage Financing In 2023

By Bryan Daly

Alternative lenders can provide all Canadians with the opportunity to become homeowners, keep reading to learn how they can help you too.

https://loanscanada.ca/wp-content/uploads/2012/08/second-mortgage-vs.-heloc.png
Home Equity Line Of Credit vs. Private Second Mortgage

By Lisa Rennie

If you're a homeowner needing a loan, consider tapping into your home equity. Even with bad credit, you can get a private second mortgage.

https://loanscanada.ca/wp-content/uploads/2023/08/pro-bono-ontario.png
Find Out How You Can Get Free Legal Advice With Pro Bono Ontario

By Lisa Rennie

Lawyers aren't cheap, and many Canadians aren't able to afford their services. Check out Pro Bono Ontario for free legal guidance.

https://loanscanada.ca/wp-content/uploads/2023/09/Jobs-that-pay-cash.png
Can You Get Jobs That Pay Cash In Canada?

By Savanna Craig

Whether you're looking for jobs that pay cash or have a job that pays cash, it's important to understand your rights and obligations.

https://loanscanada.ca/wp-content/uploads/2021/05/Best-Credit-Building-Credit-Cards.png
Best Credit Cards To Build Credit 2023

By Lisa Rennie

The top credit building credit cards available to Canadian consumers looking to improve their credit score.

Recognized As One Of Canada's Top Growing Companies

Loans Canada, the country's original loan comparison platform, is proud to be recognized as one of Canada's fastest growing companies by The Globe and Mail!

Read More

Why choose Loans Canada?

Apply Once &
Get Multiple Offers
Save Time
And Money
Get Your Free
Credit Score
Free
Service
Expert Tips
And Advice
Exclusive
Offers

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.

Koho Prepaid Credit Card