There are early signs that interest rate hikes from the Bank of Canada are starting to feed through to the return rates of certain savings accounts. But the question remains on whether these higher returns will encourage Canadians to save more – especially considering the soaring cost of living.

“I don't think higher interest rates are going to motivate people to save more,” Tony Salgado, president and founder of wealth management firm AMS Wealth, said in a phone interview. “I think it's probably going to motivate people to save differently. Instead of just leaving the money in a cash account, they may want to put it into a high-interest savings account or a GIC (guaranteed income certificate).”

In addition to GICs and high-interest savings accounts, he added that individuals might also want to look at fixed-income investments, whereas they might not have considered those types of investments before because of their weak yields.

The Bank of Canada has signalled it’s still in the early innings of its hiking cycle after bringing its benchmark rate to one per cent on April 13. Market data indicates traders are betting the central bank lifts its key lending rate above 2.50 per cent by the end of the year, which would in theory impact return rates on savings accounts.

However, rate comparison website RateHub.ca shows higher rates still haven’t trickled through to many high-interest savings accounts.

“We haven't quite seen significant movement on the savings products side for interest rates,” Natasha Macmillian, director for everyday banking at Ratehub.ca, said via phone.

“Where we have seen some adjustments - and for longer-term savers - the guaranteed investment certificates. So the GIC rates are much more promising.”

Ratehub.ca shows many high-interest savings account rates are still hovering within the one to 2.50 per cent range, while some financial firms are now offering three-year GIC rates of as much as four per cent.

“It typically takes financial providers longer to pass down the savings to consumers, whereas they're much quicker to pass on the higher interest rates on the borrowing side,” Macmillan said.

She added that it’s common for smaller financial players to raise their savings accounts rates first and the big banks will follow their lead to better compete.

SOARING COST OF LIVING

Even as these return rates rise though, the soaring cost of living could eat into household budgets, leaving little room to save more.

“Our view is that what we're going to see going forward is the savings rate in Canada will continue to come down. … [The rate of savings] was at unprecedented levels during the pandemic,” Randall Bartlett, senior director of Canadian economics at Desjardins, said in a phone interview.

Bartlett said as interest rates move higher, savers could be attracted to savings vehicles they might have overlooked in the past, but at the same time, borrowing costs and the cost of living are also rising, so the ability to save more is “a function of what individual households are going to be contending with a rising interest rate environment.”

There is some indication of heightened curiosity in high-interest savings accounts though, according to Macmillan.

“We have seen increased traffic on Ratehub.ca for products in our banking and investment portfolio,” she said.” So again, that accounts for GICs and high-interest savings accounts so I think it's top of mind for people.”

“But I think each household will have to kind of do their checks and balances to see where everything else lands to decide how much they're actually able to put towards savings.”