The Bank of Canada’s overnight rate is the single most influential factor affecting the interest rates you earn on savings and pay on debt. Understanding how rate changes ripple through the financial system helps you make better decisions about where to put your money.
What is the Bank of Canada overnight rate?
The overnight rate is the interest rate at which major banks lend money to each other overnight. It is the Bank of Canada’s primary tool for controlling inflation and managing the economy.
- When inflation is too high: The Bank of Canada raises the overnight rate to slow borrowing and spending
- When the economy is weak: The Bank of Canada lowers the rate to encourage borrowing and stimulate growth
How rate changes affect different savings products
High-interest savings accounts (HISAs)
HISAs are the most directly affected by Bank of Canada rate changes. Because HISA rates are variable, banks adjust them quickly after a rate decision — usually within days or weeks.
| Rate Change | Effect on HISA |
|---|---|
| Rate increase (+0.25%) | HISA rate rises (often by 0.10%–0.25%) |
| Rate decrease (-0.25%) | HISA rate drops (often by 0.10%–0.25%) |
| Rate hold | No change |
Banks do not always pass on the full rate change. They may increase rates by less than the full 0.25% when rates rise, and cut by the full amount when rates fall.
GICs
Existing GICs are not affected — your rate is locked in for the term. However, new GIC rates adjust based on rate expectations:
- Rising rates: New GIC rates increase, but buying now means missing out on future higher rates
- Falling rates: GIC rates drop, making it a good time to lock in before rates fall further
- Rate expectations matter: GIC rates often move ahead of actual Bank of Canada decisions based on market expectations
Mortgages
| Mortgage Type | Effect of Rate Increase | Effect of Rate Decrease |
|---|---|---|
| Variable rate | Payments increase immediately | Payments decrease immediately |
| Fixed rate (existing) | No change until renewal | No change until renewal |
| Fixed rate (new) | Rates may rise | Rates may fall |
Variable-rate mortgage payments change within one to two payment cycles after a Bank of Canada rate decision. Fixed mortgage rates are based on bond yields, which often move independently of the overnight rate.
Investments
Rate changes affect investments in several ways:
- Bond prices fall when rates rise (existing bonds become less attractive) and rise when rates fall
- Stock markets can react negatively to rate increases (higher borrowing costs for companies) and positively to rate decreases
- GIC alternatives become more attractive in high-rate environments, potentially drawing money away from stocks
What to do when rates are rising
- Keep savings in a HISA — Your rate will increase with each Bank of Canada hike
- Stay short on GICs — Avoid locking in long-term GIC rates that will soon be surpassed
- Review your mortgage — Variable-rate mortgage holders should prepare for higher payments
- Continue investing — Rate cycles are temporary; long-term investors should stay the course
What to do when rates are falling
- Lock in GIC rates — Secure current rates before they drop further with a GIC ladder
- Consider moving HISA money to GICs — Your savings rate will decline, so locking in may preserve your yield
- Mortgage opportunities — Consider locking in a fixed rate if variable rates have been rising and are now falling
- Bonds may rally — Falling rates push bond prices up, benefiting bond fund holders
How to stay informed
The Bank of Canada announces rate decisions eight times per year. Check our prime rate page for the latest rate and how it affects your borrowing costs, or use our savings interest calculator to see how rate changes impact your savings.