Why isn’t your savings account making you more?

Canadians are earning nominal interest rates on their savings accounts—is it because we're complacent consumers?

Driving the news: While the cost to borrow has been rising in line with the Bank of Canada's (BoC) key interest rate, you’ve probably noticed what you're earning by keeping your money in the bank hasn’t changed much. 

  • Most big banks offer 0.01 to 0.035% on deposits.

  • Even accounts labelled "high-interest" pay out less than 2%, and they can come with stipulations like a minimum balance required to access the higher interest rate.

Why it's happening: Canadian banks don’t really need your money right now. They are brimming with cash these days, giving them little incentive to raise interest rates on savings accounts, a move typically made to attract new clients.

  • "Banks are making profits by not passing on the higher interest rates," finance professor Claire Celerier told the CBC, adding that a slowdown in the mortgage market is also a factor.

Yes, but: There's a consumer aspect to consider as well—a lot of people don’t want to pay the "time tax" involved in switching financial institutions. 

  • Besides, who are they gonna switch to? There's not much competition in Canadian banking, and all the big players tend to offer similar rates.

Why it matters: A savings account is supposed to be a vehicle to help your money make you more money while providing a financial cushion—but if your interest rate is lagging behind inflation at 5.92%, then the cash stashed in your savings account is losing purchasing power.

Here are some alternatives to a traditional savings account:

  • Guaranteed Investment Certificates (GIC): They provide an interest rate between 4 and 5%, but typically you've got to lock your money in for a term, reducing your liquidity.

  • High Interest Savings Account ETFs: A broker pools money from clients and puts it in a HISA at a bank which earns premium rates—around 4.99% annually. You can get your cash out anytime, but you'll pay brokerage fees.

  • Switch to a smaller bank or credit union: They compete with the big banks for clients, so they lure new business in by providing higher interest rates on deposits. This comparison chart is a great resource to help you find the best rate.