Bank of Canada Raises Policy Rate to 2.5%, Boosting Returns for Savers
The Bank of Canada raised its policy rate by a quarter point to 2.5 per cent on Oct. 28, the first increase since 2023. The move, driven by inflationary pressures from the war in Iran and resulting energy shocks, has pushed savings account and GIC rates higher, though slower economic growth and U.S. political developments may limit further hikes.
On Oct. 28, the Bank of Canada raised its policy rate by a quarter point to 2.5 per cent, marking the first time the central bank has increased its benchmark rate since 2023. The decision was influenced by the ongoing war in Iran and the resulting energy shock leaking into the economy.
Respondents to the Bank of Canada’s Business Outlook Survey indicated plans to pass higher costs on to customers due to the energy shock, while consumer survey respondents expect faster inflation.
Despite these inflationary pressures, recent data points to a cooling economy. Early Statistics Canada data put third-quarter growth at roughly 1.3 per cent annualized, below the Bank of Canada’s previous projection of 2 per cent. Additionally, Democrats swept the U.S. midterms, taking both chambers of Congress, a result that may limit President Trump's ability to pursue an inflationary agenda and potentially cool bets on further rate hikes.
The rate increase has delivered higher returns for savers. Over six weeks, the best standard savings account rate rose to 3.25 per cent from 3 per cent. Guaranteed Investment Certificate (GIC) rates also climbed: the top one-year GIC rate reached 4.05 per cent from 3.80 per cent, the best three-year GIC rate rose to 4.40 per cent from 4.35 per cent, and the best five-year GIC rate increased to 4.55 per cent from 4.45 per cent. Shorter-term rates have risen faster than longer-term rates, narrowing the gap between the best five-year and one-year GIC rates from 65 basis points to 50 basis points.
WealthONE currently offers the top rates in most categories except promotional savings rates. Simplii Financial offers a leading promotional savings rate of 5 per cent for five months, while Oaken Financial provides competitive rates close to WealthONE's for three- and five-year GICs.
In the mortgage market, the lowest three-year fixed mortgage rate stands at 4.29 per cent, and the lowest five-year variable mortgage rate is 3.60 per cent. Interest rate data is provided by WOWA.ca, which aggregates information from over 50 Canadian financial institutions.