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Tag: high interest savings accounts

  • How much money should I have saved by age 40? – MoneySense

    How much money should I have saved by age 40? – MoneySense

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    All the while, you’ve got a serious case of FOMO every time you check social media—all those friends who are jetting off on lavish vacations, buying new cars and splurging on cottages. How are ordinary Canadians actually doing this? And how can you get ahead and save more?

    What’s the average savings for Canadians in their 30s? How much should they have saved?

    A lot of Canadians are managing to save, despite the above financial challenges and obligations. According to Statistics Canada’s 2019 figures (the most recent available), the average person under age 35 had saved $9,905 towards retirement (RRSPs only) and held $27,425 in non-pension financial assets. For Canadians aged 35 to 44, these numbers are $15,993 and $23,743, respectively.

    The table below shows the average savings for individuals and economic families, which Statistics Canada defines as “a group of two or more persons who live in the same dwelling and are related to each other by blood, marriage, common-law union, adoption or a foster relationship.” In 2019, the average household savings rate was 2.08%.

    Financial assets, non-pension No private pension assets, just RRSPs Private pension assets and RRSPs
    Individual under age 35 $27,425 $9,905 $25,263
    Economic family under age 35 $105,261 $140,662 $60,305
    Individual aged 35–44 $23,743 $15,993 $39,682
    Economic family aged 35–44 $131,017 $138,488 $399,771
    Source: Statistics Canada

    The pandemic had a positive effect on savings; the disposable income of the average Canadian rose by an additional $1,800 in 2020, according to the Bank of Canada. That meant most Canadians were able to save an average of $5,800 that year.

    Despite this pandemic silver lining, most Canadians aren’t saving enough for their age groups. When CIBC polled Canadians in 2019 on how much money they’d need in retirement, on average they guessed they would need $756,000. The actual amount you’ll need depends on many factors—to estimate your own number, check out CIBC’s retirement savings calculator.

    How to prioritize financial goals and obligations in your 30s

    With so much going on in your 30s, it can be very challenging to save when you have so much to pay for. After all, you may be carrying a lot of debt due to student loans, a car loan or a mortgage. In the third quarter of 2023, Canadians aged 26 to 35 owed an average of $17,159, and Canadians aged 36 to 45 owed $26,155, according to a report from Equifax.

    Maybe debt is less of a concern for you, but you’re saving for a big goal—like a down payment on a home—and you’re feeling the strain of a high interest rate and inflation. Perhaps you’d like to start a family, but you’re worried about the costs of raising a child. Or you’ve dabbled a bit in the stock market and want to make a few more investments.

    Whatever your situation, talking to a financial planner about your finances and your priorities can help you map out a customized financial plan that factors in your immediate goals—as well as long-term savings and retirement strategies. This might include focusing on paying off high-interest debt, putting aside money for a home, shopping around for life insurance and ensuring that you save each month.

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    Anna Sharratt

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  • Making sense of the Bank of Canada interest rate decision on July 24, 2024 – MoneySense

    Making sense of the Bank of Canada interest rate decision on July 24, 2024 – MoneySense

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    What is the Bank of Canada’s interest rate?

    This latest decrease brings the central bank’s rate—which sets the benchmark for Canada’s prime rate and variable-rate borrowing products—to 4.5%.

    Combined with last month’s decrease, the benchmark cost of borrowing in Canada is now down 0.5% and is at its lowest since May 2023.

    What does the rate cut mean? Will the interest rate cuts continue?

    In the immediate aftermath of today’s rate cut, Canada’s prime rate will decrease from 6.95% to 6.7%, with consumer lenders passing that discount onto their prime-based products, including variable mortgage rates and home equity lines of credit (HELOCs).

    While the outcome of today’s BoC announcement was expected—markets had priced in an 80% chance of a cut—the language in the central bank’s news release was surprisingly cheerful. The central bank usually keeps its cards close to its chest in terms of future cuts, but it wasn’t afraid to come across more dovish today, pointing to the progress made thus far on inflation.

    It noted its preferred Consumer Price Index (CPI) “core measures” (called the CPI trim and median) have both trended under 3% in the last few months. The BoC also suggested that inflation will settle around 2%—the target the central bank wants to see—by 2025.

    That translates to more cuts to come. The question now, though, is whether another quarter-point cut will come in September and/or December. And, of course, just how many more cuts will come in 2025. 

    Currently, analysts believe the BoC’s cutting cycle will bottom out at 3%, which would require another six quarter-point cuts. 

    Of course, the BoC maintains that future cuts will depend heavily on inflation, stating, “Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook.” That means the markets will be watching upcoming CPI reports like a hawk. 

    What does the BoC rate announcement mean to you?

    …if you’re a mortgage borrower

    Renewing or borrowing, this is good news for Canadian home owners.

    The impact on variable-rate mortgages

    If you’ve stuck it out this far with a variable mortgage rate, you’re being rewarded today. As a result of today’s rate cut, your mortgage rate and payment will lower in kind immediately, if you’re in an adjustable-rate mortgage. If you’ve got a variable mortgage rate with a fixed payment schedule, more of your payment will now go toward your principal mortgage balance, rather than servicing interest.

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    Penelope Graham

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  • Will Canadian HISA ETFs survive the new rule change? – MoneySense

    Will Canadian HISA ETFs survive the new rule change? – MoneySense

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    The Office of the Superintendent of Financial Institutions (OSFI) issued a ruling on Oct. 31, 2023, that requires banks taking deposits from ETF issuers to have 100% of the capital needed to support those deposits in case they get rapidly withdrawn.

    The most popular HISA ETFs 

    The reason for HISA ETFs’ popularity with investors is not hard to see. After a couple of the worst years ever for fixed income, they present a place to park your money with essentially zero volatility, combined with yields tracking ever-higher interest rates (now more than 5%). Not only do these funds find some of the best deals in savings accounts for you, but you can also buy and sell them on a whim.

    As of Oct. 31, the CI High Interest Savings ETF (CSAV) ranked as the fourth largest ETF in Canada, with $8.7 billion in assets under management, CEFTA figures show. And HISA ETFs’ appeal seems undiminished, even as fixed income reasserts its position in investors’ portfolios with interest rates expected to top out soon, if they haven’t done so already. Over the month of October, the Horizons High Interest Savings ETF (CASH) and CSAV were the number two and number three ETFs in Canada, respectively, in net inflows.

    Are HISA ETFs safe?

    The sudden shift of capital into HISA ETFs caught the attention of the OSFI, which oversees banks operating across the country. The regulator was concerned about the potential for instability in the banking system should investors withdraw their money as fast as, or faster than, they deposited it, as the ETF format enables them to do. The OSFI undertook a public consultation process last spring, considering “systemic concerns with contagion, potential for regulatory arbitrage, and the absence of guarantees or deposit insurance typically found with traditional savings accounts,” it said in its ruling on Hallowe’en.

    When new regulations around HISA ETFs take effect

    The OSFI ruled that, as of Jan. 31, 2024, “any deposit-taking institutions exposed to such funding must hold sufficient high-quality, liquid assets, such as government bonds, to support all HISA ETF balances that can be withdrawn within 30 days.” 

    What it means for Canadian investors

    While the decision is directed at the banks offering HISAs, it will have indirect effects on the ETFs holding these savings accounts. Some Canadian investors have expressed concern that the new rules might restrict the number of banks taking deposits from fund companies and might constrain yields as a result. 

    An analysis by TD Securities suggested yields would drop around half a percentage point come January. However, Naseem Husain, senior vice president and ETF strategist at Horizons ETFs, emphasizes the upside of regulatory clarity.

    “At the end of the day, the OSFI decision regulates and confirms the ongoing viability of HISA ETFs, ensuring they’re here to stay and will continue to be a viable investment option,” says Husain. “This decision will likely lead to greater competition in the space from a product perspective, and that could incentivize more investors to consider using HISA ETFs in their portfolios.”

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    Michael McCullough

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