The situation was different the last time inflation was this high. In 1981, when inflation hit 12%, Statistics Canada data indicates that the interest rate on savings accounts was then 19%. Even in 1990, when inflation had fallen below 5%, the interest rate on bank accounts was still above 9%.
One of the main causes of this gap is the concentration of the banking sector in Canada, believes Professor Célérier.
“When competition between banks is weak, they take longer to adjust interest rates on savings accounts. “
There is no incentive for banks to change their interest rate policy, he adds.
“When banks don’t raise interest rates on savings accounts, they make more profits. It is a very easy way to make a profit. “
In the early 1980s, the advent of mutual funds offered an alternative to banks for the average saver.
An increasing number of online banks and credit unions offer competitive rates. After the Bank of Canada announced a one percentage point hike in the benchmark interest rate in July, Oaken Financial raised the interest rate from 1.65% to 2.25%. For its part, Duca, a cooperative bank, raised the rate from 3.1% to 3.25%, said Natasha Macmillan, director of Ratehub.ca.
Canadians don’t change banks very often. According to a 2020 Accenture survey, fewer than 4% of customers had transferred their savings account to a competing bank the previous year.
Some banks have begun to raise interest rates, often through a short-term promotion. The offer is often subject to restrictions and is not open to everyone.
“Banks are ready to take advantage of high interest rates for loans, but they are slower to target those who want to save,” says Natasha Macmillan.
Scotiabank offers a temporary rate of 4.05% on the Momentum savings account. CIBC offers a rate of 3.55%, but drops to 0.8% after 120 days.
TD Bank is content to offer a rate of 0.05% for one account greater than $ 5,000 and 1% for another account greater than $ 10,000. The Royal Bank offers only 0.8 and the Bank of Montreal only 1%.
According to Natasha Macmillan, if more savers decide to transfer their accounts to alternative companies, the pressure would be heavier on the shoulders of the major players.
“If more Canadians are more comfortable shopping or transferring their account, five or six big banks will start to feel competitive pressure and raise their rates. “
But banks aren’t looking for new customers as Canadians made significant savings during the pandemic.
“Banks are not short of cash and liquidity. The level of deposits remains high, said Carl De Souza, senior vice president of the rating agency DBRS Morningstar. There is less pressure to raise savings rates, unless deposits suddenly drop or a competitor raises their rates. “
Carl De Souza notes that if savings co-operatives offer higher rates it is because they were created to serve their members and not to allow shareholders to make a profit. However, consumers are still reluctant to make a choice.
“Some may not want to invest in cooperative banks despite the higher interest rates because they believe they pose a greater risk than large banks. “