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TFSA down to 2%
October 14, 2010
10:56 am
Andrew
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and the actual rate of inflation is around 0.5%, so the real return rate is around 2.0 - 0.5 = 1.5%, which is basically the same.

While this may be more or less true using CPI (http://www.statcan.gc.ca/subje.....pc-eng.htm) as a measure of inflation, I think that the housing market is driving inflation at a higher rate than the CPI lets on. See this article: http://www.oftwominds.com/blog.....ation.html.

Although that article is talking about the US, I believe the analyses holds true for Canada.

Looking at GDP (http://www40.statcan.gc.ca/l01.....41-eng.htm), you can see that the growth of our economy is quite dependent on the category named "Finance and insurance, real estate and renting and leasing and management of companies and enterprises". The financial sector, and real estate have a big influence on our GDP, and hence, these are the two areas that are being propped up by lower interest rates, so I believe the situation described in the article applies to us as well and that our true rate of inflation is greater than the official rate of inflation.

I don't think savings interest rates are keeping up with inflation at all. Anyways, my 2 cents, look forward to seeing someone else's take on it.

October 15, 2010
12:26 am
Homer
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If you look at intrest rates from years back from 1930s
when an economy is going good the rates are at par any where from 5% to 12%
and when it slows down thats when intrest rates are down to make the economy pick up

If this is true, then why were interest rates in the mid to high teens during the recessions of 1981 and 1991?

October 15, 2010
12:28 am
Homer
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FYI - When savings account interest was paying out at 4.5%, inflation was at around 3%, so the real return rate was 4.5 - 3.0 = 1.5%. Savings interest rates nowadays peak at 2.0%, and the actual rate of inflation is around 0.5%, so the real return rate is around 2.0 - 0.5 = 1.5%, which is basically the same. You have to account for inflation when considering interest rates.

Why, then, in 1991 was the annualized inflation rate 5.6260%, yet I could get a savings account for 9%? That's a far bigger spread than 1.5%, isn't it?

October 15, 2010
7:24 am
Doug
British Columbia, Canada
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It's one thing to point out inflation rate with regard to retention of purchasing power but you also need to look at taxes paid. Interest income is taxed at the highest rates with no deductions for certain things.

Cheers,
Doug

October 15, 2010
8:40 am
Andrew
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If this is true, then why were interest rates in the mid to high teens during the recessions of 1981 and 1991?

Both of these were at the tail end of recessions when the Central Bank felt that they needed to turn off the printing presses (raise interest rates) to stave off inflation. Whether the centralized planning of the money supply causes recessions, however, is another matter.

August 22, 2011
7:20 am
Barry
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Now TFSA from ING direct has gone down to 1.5%....just checked yesterday..SUCKS

August 23, 2011
8:18 pm
Guest2
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Yes, I saw that too. 08/20/2011 changed to 1.50% despite no decrease to the Bank of Canada rate. I bet if the Bank of Canada rate had increased, ING would have left its rate static. We got shafted again.

August 30, 2011
12:09 pm
Chanda
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Nightowl said:

For those of us wondering how long the 3% rate would hold we have an answer, nearly 4 months. At least this rate is better than the ISA rate.

It's actually down to 1.5% as of August 20th 2011.

August 31, 2011
3:15 pm
guest
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Hopefully everyone here has had ample opportunity to watch the TFSA savings account bait-and-switch tactics deployed by ING and the other online banks since the TFSA was introduced in 2009. Folks, it ain't worth it. Use your TFSA to invest in solid, large-cap dividend payers like BCE and leave your cash outside your TFSA with someone like Ally (still paying at 2.0%). The miniscule amount you'll pay in taxes will be far less than the tax-sheltered growth and dividend payouts you'll get. Yes, the risk is there, but you can't let it paralyze you. That's exactly what ING and the other banks are hoping will happen each January when you can recontribute to your TFSA and kick in an extra $5000.

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