COVID-19 had such a strong impact to the world economy, no doubt. But if there’s one bright side to the pandemic, it was the fact that Canadian interest rates reached historic lows during the height of COVID-19.

Thanks to a push for Canadian banks to lower interest rates and their fees by organizations like ACORN Canada and other anti-poverty advocates, six of the country’s biggest banks agreed to reduce interest rates on credit cards as a relief to customers affected by the pandemic. These banks were Bank of Montreal, Bank of Nova Scotia, Toronto-Dominion Bank, Royal Bank of Canada, National Bank of Canada, and Canadian Imperial Bank of Commerce.

All these banks had their own way to alleviate the financial strain felt by their customers due to COVID-19. TD Bank, for example, cut their interest rates by half, while BMO reduced theirs to 10.99 per cent.

Before the pandemic, most of these banks charged interest rates between 19.99 per cent and 20.99 per cent on purchases.

Lower interest rates also extended to mortgages, which was good news for aspiring and current homeowners.

Three months into the health crisis, the five-year fixed rate dropped to a record low of 1.99 per cent. At the time, homebuyers everywhere were ready to take advantage of the decreased interest rate for mortgages. At the same time, it was a good opportunity for those who were already homeowners to refinance and consolidate debts.

The Canadian government also urged banks to offer mortgage relief plan to those affected by the health crisis that allowed them to defer or skip payments for as long as six months.

Lower interest rates also made it attractive for any borrower looking into spending on a large purchase, apart from a house, like a car.

However, lower interest rates also brought in disadvantages.

For one because it made borrowing costs cheaper, it led to greater spending for some consumers. Some individuals also were tempted to take out larger loans beyond their payment capabilities even though they didn’t truly need these loans; it was tempting to apply for them because of the promise of lower interest rates.

Another bane is that consumers were deprived of an incentive to save since the lower interest rates were encouraging them to spend more rather than hold on to their hard-earned bucks.

Those who sent money abroad to family and friends also bore the brunt of lower interest rates because there was a depreciation in the exchange rate and the Canadian dollar experienced a fall in its value.

The lower interest rates offered its own set of the good and bad for consumers, but it’s still too early to tell its effects in the long run. Now that the pandemic is easing up, financial situations may have been more stable, but some things may still be up in the air. It’s good to be vigilant and be well-prepared for changes in interest rates to avoid missteps.

SOURCES

Better Dwelling. “Bank of Canada Waited Too Long, Expect Much Higher Interest Rates: Scotiabank.” https://betterdwelling.com/bank-of-canada-waited-too-long-expect-much-higher-interest-rates-scotiabank/

Foran, Pat. “Canadian banks urged to do more to lower fees and credit card interest rates.” CTV News. https://toronto.ctvnews.ca/canadian-banks-urged-to-do-more-to-lower-fees-and-credit-card-interest-rates-1.5507869 

Foran, Pat. “Pandemic pushes Canadian interest rates to near historic lows.” CTV News. https://toronto.ctvnews.ca/covid-19-pandemic-pushes-canadian-interest-rates-to-near-historic-lows-1.4982314

Press, Jordan. “Raising interest rates will help lower inflation in time, BoC governor says.” Global News. https://globalnews.ca/news/8658247/bank-of-canada-interest-rates-inflation/

Reuters. “Canada’s Big Six banks cut credit card interest rates to ease coronavirus impact.” https://www.reuters.com/article/health-coronavirus-cibc-idUSL4N2BR42T