Bank of Canada hikes policy rate, boosting top savings and GIC returns
The Bank of Canada raised its policy rate to 2.5%, prompting higher rates on standard savings accounts and guaranteed-investment contracts across Canadian banks.
The Bank of Canada increased its policy rate by 0.25 percentage point on Oct. 28, bringing the benchmark to 2.5% — the first hike since 2023. The move lifted the best standard savings account rate to 3.25%, up from 3% six weeks earlier, and raised the top one-year guaranteed-investment contract (GIC) rate to 4.05% from 3.80%.
Longer-term GICs also rose, though more modestly: the leading five-year rate climbed to 4.55% from 4.45%, and the three-year rate edged up to 4.40% from 4.35%. Smaller financial institutions captured most of the gains, with WealthONE leading in all categories except promotional savings offers, where Simplii’s five-month 5% rate remains the highest.
The rate hike reflects ongoing pressures from the conflict in Iran, which has kept energy costs elevated, and a Business Outlook Survey indicating firms plan to pass higher expenses onto consumers. A consumer survey showed households expect inflation to accelerate, prompting the bank to act despite modest third-quarter growth of about 1.3% annualized, below the 2% forecast.
U.S. political developments may also temper expectations for further hikes. After Democrats won control of both chambers in the recent midterm elections, President Donald Trump is expected to face a more constrained legislative environment, potentially limiting additional inflationary measures.
For savers, the narrowing gap between short- and long-term GIC rates suggests that shorter-term products have risen faster, offering quicker opportunities to reinvest if rates continue to climb. A five-year GIC now yields 4.55%, only slightly above the top three-year GIC rate of 4.40% and comparable to the lowest three-year fixed mortgage rate of 4.29%.
Financial advisers recommend keeping cash needed in the near term in a high-yield savings account, while diversifying across GIC maturities to balance liquidity and rate exposure. Data on rates were compiled by WOWA.ca from more than 50 Canadian financial institutions.