Canadians shopping for a savings account in 2021 are getting a much worse rate than a year ago. As interest rates tumble, banks and lenders are responding by cutting their own rates. With the Bank of Canada pointing to a weak interest climate for the foreseeable future, savings account rates are likely to continue to fall.
In a COVID-19 world, the importance of finding the best tool for saving money has become crucial. Millions of Canadians are in the midst of a financial crisis and searching for ways to secure their future.
While it is easy to dismiss the value of savings accounts (including high-interest accounts (HISAs)) as interest rates stay low, there is still strength in this investment option. In the following article you can read about the benefits of savings accounts even when rates are not attractive to customers.
A COVID-19 Problem?
It is true that there are factors beyond the current COVID-19 crisis impacting Canada’s interest rate, but there is no doubt that the pandemic has played an important role in falling rates.. An inescapable and essential lockdown to maintain public health left Canada’s economy teetering on a precipice of a full recession.
In response, the Bank of Canada has consistently cut the country’s interest rate during the pandemic. By early 2021, the rate had fallen to 0.25%, the lowest it has been since the 2009 economic crisis. It’s unlikely to change soon, with the rate expected to hold over the rest of the year.
Moreover, the Bank of Canada says low interest rates will continue until at least 2023. For Canadians taking savings seriously, that forecast is not good news.
Savings Accounts Still Have Value
It’s easy to write off savings accounts or take them for granted. Because they are traditional, they may not be the “sexy” option for investing money. Add low interest rates to the mix and Canadians would be forgiven for dismissing savings accounts altogether. RATESDOTCA points out savings accounts can still be useful financial tools, even during a period of low interest rates.
However, there are still benefits available when you put money into the best savings accounts:
- Easy access to funds: Other investments, such as stocks, bonds, and brokerage accounts do not make cash readily available. To access funds, you must convert or sell. Savings accounts store your money as cash, meaning you can transfer whenever you need funds.
- Provides a barrier to spending: One of the toughest aspects of saving is not spending available money. There are many financial distractions and with Canadian debt at an all-time high, it has never been harder to save money. Because savings accounts lack traditional withdrawal methods (debit card), spending money is harder.
- Make automatic transfers: While some people like to micromanage their savings output, others prefer a hands-off approach. Savings accounts allow holders to set up automatic transfers from their checking account.
- Hold multiple accounts: Customers can open more than one savings account. That may seem pointless on the surface, but it’s a valuable benefit. For example, you can set up different accounts for different spending output. Holding several accounts also allows you to move money around to get the best interest rate.
- Keep emergency funds: While perhaps not the best long-term investment, savings accounts are excellent for short-term savings goals or for keeping emergency money.
- Not influenced by market conditions: Once your money is stored in a savings account, it will not decrease or increase depending on what’s happening in the market. In fact, you will make a return on your investment through a pre-set interest rate.
Rates Are Going to Improve
Despite the unpredictability of the economy, one thing is certain… it’s all cyclical. Whatever goes up must come down and vice versa. Interest rates are low and will stay that way for at least the next several years. However, eventually the rates will recover as they have following previous financial crises. History shows us the road to recovery can be bumpy.
That may be scant consolation for Canadians weighing up the impact of low interest rates as they shop for savings accounts. Still, it’s worth remembering that while rates are an important part of saving money, they aren’t the only way savings accounts can provide you with value.
Shopping for the best savings account rate has never been more important. By looking for the best savings accounts, you can access the best possible interest rates across Canada’s leading lenders.
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