The Bank of Canada building is pictured in Ottawa.Sean Kilpatrick/The Canadian Press
The positive spin on the interest rate increase that could come as soon as July 12 is deliverance from the hell of trying to earn a decent return on safe money.
Given the massive borrowing by Canadians in recent years, it's natural for rate increases to be framed as a reckoning of sorts. But for savers, a rate increase would start the process of boosting returns on savings accounts, GICs and bond yields.
There are some cases of financial players offering premium rates in today's low-rate world. Guaranteed investment certificates from Home Capital through its Oaken Financial, Home Bank and Home Trust brands offer as much as 3.25 per cent over five years, while EQ Bank is paying 2.3 per cent on its high interest savings account. But if you prefer to deal with more mainstream financial companies, then you have to accept rates at half those levels or worse.
Here are three strategies for putting yourself in a position to benefit as rates mover higher:
- Keep bond and GIC ladders to three years
Locking money in for five years to get a slightly higher yield doesn't seem like a good bargain right now. There's typically only a modest loss of yield in picking a three-year term compared to four or five years.
- Don't be in a rush to buy bonds and bond funds
The bond market is very jittery about the potential for higher rates and prices for bonds and bond funds have been falling. Bond yields and prices move in opposite directions – that explains why the yield on the five-year Government of Canada bond shot up to 1.29 per cent at mid-week from 0.92 per cent four weeks earlier. The Bank of Canada has been feeding the expectation that the current emergency lows for interest rates are no longer appropriate. If rates keep edging higher this year and next, bond yields will keep rising.
- Park money in high interest accounts
Take a high interest account over a one-year bond or GIC if you want to keep money ready to exploit higher interest rates down the road. When the Bank of Canada raises its benchmark overnight rate, there will be upward pressure on the returns on high interest accounts. And when you decide you're ready to commit money to bonds or GICs, you can get quick access your savings account holdings at no cost.