Savers get a raise as the Bank of Canada turns hawkish

The Bank of Canada raised its policy rate on Oct. 28 for the first time since 2023, nudging it up a quarter point to 2.5 per cent. The latest move means savers are on the receiving end of a rate hike.

The best standard savings account rate is now 3.25 per cent, up from 3 per cent six weeks ago. Over the same stretch, the top one-year GIC rate climbed to 4.05 per cent from 3.80 per cent.

Longer terms moved less. The best five-year GIC pays 4.55 per cent, up from 4.45, and the three-year inched up to 4.40 per cent from 4.35. Smaller institutions did most of the running.

WealthONE now tops every category except promotional savings rates, where Simplii’s 5 per cent five-month offer still leads, and Oaken Financial is close behind on three- and five-year GICs.

Why the bank moved

The war on Iran grinds on, and the energy shock it set off is leaking into the rest of the economy. In the bank’s latest Business Outlook Survey, firms said they plan to pass more of their higher costs on to customers.

Households, for their part, told the bank’s consumer survey they expect faster inflation. Neither group was predicting the future so much as announcing it. That risk, more than the price of gasoline, is what pushed the bank to act.

Two developments have since softened the case for more hikes. Early Statistics Canada data put third-quarter growth at roughly 1.3 per cent annualized, well short of the 2 per cent the bank had projected only days earlier.

Then on Tuesday, Democrats swept the U.S. midterms, taking both chambers of Congress. U.S. President Donald Trump will likely try to govern through vetoes and executive orders, but a hostile Congress should limit his inflationary agenda (war and tariffs) for his last two years in office. Expect the veto pen to get a workout.

By Tuesday, before anyone knew how the U.S. vote had gone, December looked like a coin toss and the expected path had flattened, with 3.5 per cent pushed out to 2028. The election may cool those bets further. Still, a slower climb is not a retreat. Until Iran is resolved, the risk that energy costs seep into wages and prices remains, and the bank has made clear it won’t sit and wait to find out.

What it means for savers

The shape of GIC rates tells you what lenders expect. Six weeks ago, the best five-year GIC paid 65 basis points more than the best one-year. Today the gap is 50. Shorter-term rates have risen faster, narrowing the extra annual return available for a five-year commitment.

That leaves savers in the familiar position of guessing what central bankers will do next, a question central bankers find hard enough themselves. If hikes continue, a one- or two-year GIC lets you reinvest at higher rates before long.

If you’d rather guard against a peace deal pulling rates down, a five-year GIC locks in 4.55 per cent, though the bonus for tying up your money that long is now slim. Can’t decide? Spread your money across maturities, so some come due sooner while the rest keeps earning today’s rates.

Cash you may need soon belongs in a savings account. The best standard rate sits 0.8 percentage points below the top one-year GIC, and could rise if the Bank of Canada hikes again. A GIC rate stays put, which is both its charm and its catch.

For savers who also have a mortgage, the numbers raise another question: whether to save or pay down debt. The top three-year GIC pays 4.40 per cent, slightly above the lowest three-year fixed mortgage rate of 4.29 per cent. The lowest five-year variable mortgage rate is 3.60 per cent. But advertised rates are only a starting point: Compare your own mortgage rate, account for any tax on the interest and check your mortgage’s prepayment limits.

Interest rates are provided by WOWA.ca, which gathers, aggregates and freely disseminates data on mortgage rates, savings accounts, and GIC rates from 50+ Canadian financial institutions.

Ali Nassimi is a financial writer and analyst at WOWA.ca, a Canadian personal-finance platform.