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The Bank of Canada’s interest rate affects everything from your savings account to your mortgage payments. Learn more in this short video.
Think of the Bank of Canada (BoC) as the “influencer of all influencers” when it comes to interest rates. Banks and other financial institutions follow its lead. Learn more about how the BoC’s overnight interest rate impacts you in this short video, featuring MoneySense executive editor Lisa Hannam.
How the Bank of Canada’s interest rate affects you
When the BoC raises or lowers the overnight interest rate or prime rate, everything from your savings account to your mortgage or line of credit can be affected. Learn more in the table below.
| Type of financial product | When interest rates go up | When interest rates go down |
| Variable-rate mortgages | Your variable-rate mortgage payments may increase if the BoC raises the prime rate. Or, a greater portion of your payments may go towards interest than to paying down your principal. | A greater amount of your mortgage payments will go towards paying down the principal. |
| Fixed-rate mortgages | Your interest rate is locked in for the duration of the loan (typically five years), so increases in the prime rate won’t immediately affect your payments, until you renew your mortgage. | Your interest rate is locked in for the duration of the loan (typically five years), so decreases in the prime rate won’t affect your payments until you renew your mortgage. |
| High-interest savings accounts | Overnight rate hikes are good news for high-interest savings accounts because the interest you earn from your deposits increases—meaning your balance will be a bit higher after sitting in the account. | When rates go down, high-interest savings accounts earn less interest, meaning you earn less from holding your money in this type of account. |
| GICs | You will earn more interest on your investment when interest rates go up. | When rates go down, GICs offer lower interest rates. |
| Variable-rate loans (line of credit, home equity line of credit, etc.) | The amount of interest you pay on your loan increases when the prime rate goes up. | The amount of interest paid on your loan payments will decrease. |
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