In this section taken from Courrier de l’Économie, our journalists answer questions from our readers.
In the 1970s and 1980s, when interest rates on loans rose, so did rates on savings accounts. I don’t see that right now, at least not in my savings accounts. Do the banks recover this money to make a profit?
Let’s look at the rate table. At the start of the year, a daily interest savings account offered 0.1%. This rate is relatively similar to that of January 2022, a time when the key rate was at 0.25% and when we were coming out of a long period of low interest rates that began after the 2008 financial crisis. remind him.
For basic high-interest savings accounts, often linked to minimum balance constraints, if we exclude promotional offensives covering a short period, the rate offered by the major banks (and the Desjardins Movement) oscillated between 1 .3% and 1.9% — while the key rate reached 5%. It varied between 2.85% and 4.8% among online banks (between 4% and 5% among the lesser known). And between 3.4% and 4% among non-bank financial companies.
Concerning the cost of credit, the prime rate has increased from 2.7% to 7.2% in the meantime. That of the average one-year mortgage rate rose from 3.1% to 7.8%, that of the three-year term, from 3.9% to 7%, and that of the five-year term, from 4.8 % to 6.8%.
That said, it is the spread, or net interest income, which matters to the bank. Here, the difference between the rate required on a loan and that paid on the deposit. And for matching purposes, the longer the term of the loan, the more the institution will prefer guaranteed deposits that are non-repayable over several years. This gap between core accounts, mortgages, consumer loans and, above all, lines of credit has rarely been so lucrative for banks. And if we remember that customer deposits can account for more than 65% of their financing…
According to various elements of explanation collected here and there on the Web, for institutions, basic bank accounts, which are intended to be dedicated to operations and transactions, are not profitable and serve as an anchor point for an offer of expanded products or services. Competition between them will focus more on guaranteed investment certificates than on these products. Depositors retain these accounts mainly for their usefulness and ease of access to liquidity, little or not for their return. Added to this would be the reluctance of customers to change banks.
It is also argued that banks have excess liquidity, swollen by the rapid accumulation of savings during the pandemic. At least they would have enough funds to meet otherwise limited needs during this period of economic slowdown and tightening credit conditions.
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