(Toronto) Canadians’ savings accounts are losing value.
Posted at 12:51 p.m.
As inflation reaches 8%, all those who have placed their savings in the bank are gradually losing their money. Blame it on interest rates on savings accounts, which remain around 1%, which do not keep pace.
“They are going to lose money. The value of their savings goes down,” says Claire Célérier, an associate professor of finance at the University of Toronto.
The situation was different the last time inflation was this high. In 1981, when inflation reached 12%, Statistics Canada data indicates that the interest rate on savings accounts was then 19%. Even in 1990, when inflation had slipped below 5%, the interest rate on bank accounts was still above 9%.
One of the main causes of this gap is the concentration of the banking sector in Canada, believes Prof. Célérier.
“When competition is weak between banks, it takes them longer to adjust interest rates on savings accounts. »
There is no incentive for banks to change their interest rate policy, she adds.
“When banks don’t raise interest rates on savings accounts, they make more profits. It is a very easy way to make profits. »
In the early 1980s, the advent of mutual funds offered an alternative to banks for the average saver.
A growing number of online banks and credit unions are offering competitive rates. After the Bank of Canada announced a one-percentage-point hike in its key interest rate in July, Oaken Financial raised its interest rate from 1.65% to 2.25%. For its part, Duca, a cooperative bank, raised its rate from 3.1% to 3.25%, said Natasha Macmillan, director at Ratehub.ca.
Canadians don’t change banks very often. According to a 2020 Accenture survey, less than 4% of customers had switched their savings account to a competing bank in the previous year.
Some banks have started raising their interest rates, often through a short-term promotion. The offer is often subject to restrictions and is not open to everyone.
Banks are quick to take advantage of high interest rates for loans, but slower to act on those who want to save.
Natasha Macmillan, Director at Ratehub.ca
Scotiabank is offering a temporary rate of 4.05% on the Momentum Savings Account. CIBC offers a rate of 3.55%, but drops to 0.8% after 120 days.
TD Bank is content to offer a rate of 0.05% for an account exceeding $5,000 and 1% for another account exceeding $10,000. The Royal Bank only offers 0.8 and the Bank of Montreal only 1%.
According to Mme Macmillan, if more savers decided to switch their accounts to alternative companies, the pressure would be heavier on the shoulders of the major players.
“If more Canadians are more comfortable shopping around or transferring their account, five or six major banks will start to feel the pressure of competition and raise their own rates. »
But the banks are not on the lookout for new customers as Canadians have made significant savings during the pandemic.
“Banks are not short of money and liquidity. The level of deposits remains high, said Carl De Souza, senior vice-president at the rating agency DBRS Morningstar. There is less pressure to raise savings rates, unless deposits suddenly decline or a competitor raises its own rates. »
Mr. De Souza notes that if savings cooperatives offer higher rates, it is because they were created to serve their members and not to allow shareholders to make a profit. However, consumers are still hesitant to make a choice.
“Some may not want to put money in cooperative banks despite the higher interest rates because they believe they represent a greater risk than the big banks. »