Canadian High Interest Savings Bank Accounts

I just noticed today that ING is finally offering GIC rates that match Ally's. Eg. 5 year GICs at 3.50%. This is remarkably competitive for ING in recent history, matching Ally like this. Are they finally starting to feel some competitive pressure?

I just noticed today that ING is finally offering GIC rates that match Ally's. Eg. 5 year GICs at 3.50%. This is remarkably competitive for ING in recent history, matching Ally like this. Are they finally starting to feel some competitive pressure?

It still stinks, though. You have to lock in for 5 full years to get a paltry 3.5%. Hopefully the Bank of Canada starts raising interest rates to reasonable levels. I remember the good old days (1990) of going to Scotiabank and opening a savings account that was paying 9%. Of course, the Prime Rate was 14.75% back then but I would settle for savings rates in the 5-6% range (assuming inflation doesn't rise that high).

Interest rates usually are raised to fight inflation. Increasing interest rates reduces demand for borrowing money, which reduces demand for the creation of new money. The reduced rate of money creation is what reduces inflation because the money supply does not grow as quickly as before, so each dollar retains more of its value over time.

The Bank of Canada's stated goal is:

to keep inflation at the 2 per cent target, the midpoint of the 1 to 3 per cent inflation-control target range. This target is expressed in terms of total CPI inflation, but the Bank uses a measure of core inflation as an operational guide. Core inflation provides a better measure of the underlying trend of inflation and tends to be a better predictor of future changes in the total CPI.

Reference: http://www.bank-banque-canada……index.html

Their tool to do this is the Overnight Rate. This all hinges on the CPI calculation being a good measure of inflation. If the CPI understates inflation, then the average person is losing out because their wages will not keep up with actual inflation since the CPI is often relied upon to calculate wage increases. If the CPI overstates inflation, then the investor class loses out because wages increase faster than actual inflation leaving less profit in terms of inflation adjusted dollars.

The results of Quantitative Easing 2 (increasing the money supply through increased reserves) in the US appears to be showing up as inflation already, even Walmart's CEO warns of this: http://www.usatoday.com/money/…..tion_N.htm

The US is also in danger of losing its AAA credit rating now as well: http://www.bloomberg.com/news/…..ating.html

Canada's fate hinges on commodities and housing. Economists are starting to say that housing is due for a correction: http://www.cbc.ca/news/busines…..using.html

Mark Carney at the Bank of Canada has already indicated that interest rates need to be raised this year: http://www.theglobeandmail.com…..le1540317/

The cyclical cycle of booms and busts should increase interest rates for savers in the next few years (but things will cost more too so savings will probably never keep up with inflation).