Canadian High Interest Savings Bank Accounts

Banks generally adjust their deposit (savings) account interest rates along with their borrowing (loans and mortgages) interest rates as the Bank of Canada adjusts the country's prime rate (currently, 4.75%).

The banks are currently suffering through what's termed "spread compression". That is, when the difference between their borrowing rates and their deposit rates shrinks. If a bank is paying 3% on customer deposits but lending at say, 5%, then their spread is only 2% – before financing costs. However, remember that banks generally derive the majority of their revenues from interest rate spread which means when there is "spread compression", it pinches profits quite dramatically leaving them with less after paying all of their expenses. For the "virtual banks" that are branchless or nearly-branchless, they have less overhead and don't have to pay for branches and all that so they can afford to pay a bit more. Still, though, they do have expenses and we really just have to accept that.

Frankly, I'd rather give up a percent to interest rate spread than be dinged with all kinds of service charges, considered non-interest revenue to banks.

So, to answer your question, when the Bank of Canada raises the prime rate, the interest rates will move upward. Hope that helps!

Cheers,
Doug M.