What’s happening with interest rates—and what it means for you.

We know… interest rates… not very interesting. Get it? Interest? Anyway, they seem to be all anyone’s talking about these days, don’t they?

It’s one thing to hear that the Bank of Canada has raised its overnight lending rate—and quite another to understand what that might mean for your own bottom line.

Wondering what you should do? We’ve got you covered. Just read this article to find out the latest news, and what it means for you.

What’s the latest?

At the end of January, the Bank of Canada raised the overnight lending rates again, this time by 25 basis points (that’s just bank jargon for 0.25 per cent, by the way).

The overnight lending rate is how the Bank of Canada lends money to financial institutions (like us). The cost of the overnight lending rate impacts the prime lending rate, which is what we use to set our own lending rates to members like you.

But like… why? Why do they raise rates at all?

The Bank of Canada’s job is to keep inflation in line. The target inflation rate is between two and three per cent. Right now, it’s trending over six per cent. We did a little bit of math and confirmed that six is higher than three. That means that the Bank of Canada has work to do.

Rate increases like the ones we’ve been seeing over the last year create a more costly borrowing environment, that in turn slows economic growth and returns the inflation rate to the optimal level.

The good news? We think this is likely the last rate increase for a while.

You might notice that higher interest rates affect your finances. Here’s what you can do to weather the storm.

I have a mortgage.

If you have a fixed mortgage rate, you might not feel the affect of rising interest rates as much as someone with a variable rate mortgage would. If you have a variable rate mortgage, you’re probably feeling the squeeze right now—because your mortgage rate will have changed a lot over the last year.

There are pros and cons to both variable rate and fixed rate mortgages. While variable rate mortgages have been common practice for a while now, there’s also nothing stopping you from switching to a fixed rate mortgage. You can lock in for a shorter term and then reevaluate when the economy is slightly more stable. As always, everyone’s situation is unique—so talk to us to find out what option is best for you.

I owe money on a loan or line of credit.

You’ve likely seen an increase in the interest rates as well. Anything tied to the prime lending rate will increase when the rates go up, which is why your line of credit or loan repayments might be feeling a little heavier than usual.

If you’re feeling the struggle, look into consolidating your debt. This creates one, structured payment to help to pay back your debt. You can also talk to your financial advisor (that’s us!) about increasing your payments so that you take a shorter time (and less interest over time) to pay it back.

I run a business.

Rising inflation tends to lead to a slower economy. That means that people often aren’t spending as much on things that they don’t need to survive. If your business doesn’t offer an essential service, you might see a decrease in customers or sales.

On top of that, you might also be hit with similar interest rate increases as everyone else on your overdraft accounts or lines of credit.

Understanding your cash flow and expenses is key right now. Reach out to a business advisor to help figure out your next move!

I am looking to save or invest.

Savers now’s your time to shine. We haven’t seen rates this high in decades, so now is the time to save and invest.

If you have room in your budget, investing and saving is a really good thing to do right now. As we’ve said plenty of times today, interest rates are high! That means that many savings accounts have higher interest rates—and the money that you keep in those accounts grows faster.

Now might be the time to invest in long-term deposits or GICs and bump up your contributions to RRSPs and TFSAs.

Regardless of your financial situation, we’re here for a conversation. There is a light at the end of this tunnel—and we can get through this, together.

What’s Next:

Remember, just having savings is a huge first step — you’re already killing it! There are a lot of different ways that you can use your extra money. And it’s not always easy to figure out the best approach. When you’re getting started, it’s a good idea to talk to a human—someone who can really understand your needs and give you the right advice for, well, you.

As tax season approaches, we can help you max out your returns. Just book an appointment with us. It’s easy. And you can do it without even having to pick up the phone.

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