Savings are slowly dripping away as deposit interest lags far behind inflation – CP24 Toronto's Breaking News
TORONTO – The savings accounts of Canadians have sprung a leak.
As inflation tops eight per cent, anyone with money in the bank is seeing their savings drip away at the fastest rate on record because interest rates for savings accounts, still largely languishing at around one per cent, haven’t kept up.
“They will lose money. The value of their savings is decreasing,” said Claire Celerier, an associate professor of finance at the University of Toronto’s Rotman School of Management.
It’s a sharp contrast to the last time inflation ran this hot. In 1981, inflation peaked at over 12 per cent, but Statistics Canada data says bank accounts were paying out 19 per cent interest, and even in 1990 when inflation was running a little under five per cent, accounts were paying out over nine per cent.
There are several reasons for the lag, but part of the problem is the concentration of Canada’s banking sector, said Celerier.
“When there is lower competition between banks, then it takes more time for them to adjust rates on deposit accounts.”
Banks simply don’t have much incentive to change rates unless they have to, she said.
“When banks don’t increase rates on deposits they’re making more profits … It’s a very easy way to make profits, to have a low rate on deposit accounts.”
Part of what boosted rates in the early 1980s was the introduction of money market mutual funds, providing a competitive alternative to bank accounts for average savers.
There are an increasing number of online banks and credit unions with competitive rates. After the Bank of Canada raised its key interest rate by one percentage point in July, Oaken Financial boosted its rate from 1.65 per cent to 2.25 per cent, while Duca credit union increased its rate from 3.1 per cent to 3.25 per cent, said Natasha Macmillan, Ratehub.ca’s director of everyday banking.
Canadians however don’t tend to switch banks very often. An Accenture survey from 2020 found that fewer than four per cent of consumers said they had switched their primary bank account in the last year.
Some banks have also started to increase rates, though often via short-term promotions and other restrictions, and it’s not across the board.
“Banks are very quick to pass on the higher interest rates on the borrowing side but are much slower to do so for those that are seeking to save,” said Macmillan.
Scotiabank is offering a temporary rate of up to 4.05 per cent interest thanks to several time-limited bonuses (some tied to new deposits) on top of their regular 1.35 per cent rate. CIBC is offering up to 3.55 per cent interest that then drops to 0.8 per cent after 120 days, up from a February 1.5 per cent promotional rate that dropped to 0.3 per cent.
TD Bank, meanwhile, offers 0.05 per cent interest on balances above $5,000 for its high interest savings account (it does offer a separate account that pays one per cent for balances above $10,000), RBC offers 0.8 per cent for its high interest account, and BMO has a one per cent savings option.
Macmillan said that more people moving to alternative lenders could put more pressure on the big players.
“As more Canadians are getting more comfortable shopping around or moving to a bank that they might not recognize as much, kind of the big five, big six banks will start to feel that competitive pressure, and increasingly start to change their rates accordingly.”
Part of the challenge though is that banks are not so desperate for deposits after Canadians have seen savings swell during the pandemic.
“The banks right now are flush with cash and liquidity, and their deposit levels are still elevated,” said Carl De Souza, senior vice-president of North American financial institutions at DBRS Morningstar.
“So there’s less pressure to increase the deposit rate, unless deposits start reducing dramatically or a competitor raises rates.”
De Souza noted that credit unions offer higher rates in part because they’re designed to serve members, and not just make a profit for shareholders like banks, but that there is still some hesitation among consumers.
“Certain individuals may not want to put money with credit unions because they perceive them to be riskier than large banks, despite the higher rates that those credit unions pay.”
Many credit unions, however, also haven’t raised rates much. Vancity is still offering 0.75 per cent interest on its main accounts since it also doesn’t have a strong need for more deposits, said chief financial officer Clayton Buckingham.
“Really how we’re setting rates is looking at overall funding needs for the organization.”
Higher customer deposits have helped meet the higher loan demand and buffered the credit union’s need for more funds, but that could change if the market shifts more, said Buckingham.
“It comes down to the competitive market. That’s driving the majority of movement, so if rates are going upat the rest of the banks and credit unions out there, then we need to follow suit.”
He said customers are instead gravitating to Vancity’s term deposits, which is similar to a guaranteed investment certificate. The products, which are linked more closely to bond rates, have climbed much faster than deposit rates, with some institutions offering rates above five per cent for longer term commitments.
Buckingham noted that it’s also still early days for inflation in general with tremendous uncertainty ahead, so financial institutions are proceeding cautiously. If deposits keep tracking down as people dip into their savings to cover increasing costs then financial institutions may have to raise rates to attract deposits, but if loan demand drops over economic worries then lenders might not need as much capital on hand.
“We’re seeing just a starting impact of what may happen in the high inflationary environment … for now it’s still everybody figuring this out.”
This report by The Canadian Press was first published July 31, 2022.
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B.C. hit with tax and fare hikes starting April 1 – CTV News Vancouver
April Fools’ is bringing more than just practical jokes to British Columbians — the province will be hit with new taxes and fare hikes starting on Saturday.
One of next month’s changes will leave many commuters debating on walking or taking public transit due to the federal government’s increased carbon prices.
The bump will see carbon pricing go from $50 a tonne to $65, which the Canadian Taxpayers Federation says will account for a spike of over three cents per litre of gas.
Alcohol sales are also expected to climb, although a recent announcement could temper it.
The federal government initially planned to implement a 6.3 per cent increase, but decided to scrap it after receiving backlash from alcohol operators and breweries nationwide. So instead, the spike will be capped at two per cent for a year.
The duties are imposed at the manufacturing level and adjusted annually based on inflation.
National increase aside, BC Hydro says the residential electricity rate will increase by two per cent, or about $2 per month on average, following interim approval by the BC Utilities Commission.
“Last year, we reduced residential rates by 1.4 per cent, and in 2024, we expect to increase rates by 2.7 per cent. Over the three-year period, it works out to an average rate increase of 1.1 per cent per year. This is below forecast inflation in B.C. over this period,” said BC Hydro in an email.
The increases in British Columbia will also be seen at the ferry terminals.
BC Ferries is expected to raise its prices by over two per cent, which is curranty capped until next year.
They projected this increase could have been more than three times larger due to inflation.
“It was clear BC Ferries users could face fare increases of 10.4 per cent a year for the four-year period of 2024 to 2028,” wrote the province.
The province announced in late February that a $500-million investment in BC Ferries was intended to keep fare increases below three per cent.
Other additional expenses coming into effect in April will be Stanley Park parking fees.
For the next six months, parking will be an additional dollar per hour or $14.25 per day. For fall and winter parking, it is set at $2.75 per hour and $7.75 per day.
Rogers-Shaw deal approved — with ‘unprecedented’ conditions. Here’s what to know – Global News
Rogers Communications Inc.’s proposed takeover of Shaw Communications Inc. will go ahead after it received the final sign-off it needed from Industry Minister Francois-Philippe Champagne.
He called the merger a “watershed moment” for the telecom sector that he claimed would drive wireless prices down for Canadians while growing the combined firm’s overall headcount.
The merger, a union between two Canadian telecom giants valued at $26 billion, including debt, has changed significantly in response to political and industry pressure since it was first announced in March 2021.
The final permutation of the merger will see Shaw sell its Freedom Mobile business and transfer wireless spectrum to Quebecor’s Videotron as the latter seeks to expand outside Quebec.
“We are at a crossroad for the telecom sector in Canada,” Champagne said in his announcement.
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Champagne’s approval came on the companies’ March 31 deadline to close the transaction.
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Rogers, Shaw and Quebecor released a joint statement Friday morning saying they have agreed to extend that closing date to April 7 in order to give enough time to finalize the agreement and meet other closing conditions.
While shares of Shaw were up slightly in trading on the Toronto Stock Exchange on Friday, Rogers’ stock price had dropped 2.8 per cent on the day.
Rogers CEO Tony Staffieri called the merger “transformative” in a statement on Friday, and said the combined companies “will invest substantially to bring more choice, more value, and more connectivity to Canadians across the country.”
Brad Shaw, the CEO of Shaw, said in a statement that “the merger will provide the scale necessary for the future success and competitiveness” of the Calgary-based company.
Shaw Communications and Corus Entertainment, the parent company of Global News, are owned by the Shaw family based in Calgary.
Pierre Poilievre, leader of the federal Conservative Party, fired a shot at the government’s approval of the deal in Question Period on Friday.
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“When will they start standing up for consumers instead of standing up for price raising and high cost corporate oligarchs?” he asked.
Brian Masse, the NDP’s industry critic, said Friday’s approval was a “cave” to the big telcos that would see Canadian consumers continue to pay some of the highest wireless prices in the world.
“We’re going to see less competition. We’re going to see higher prices and we’re going to see continued frustrations for Canadians as things go forward,” he said.
Pierre Karl Péladeau, president and CEO of Videotron-owner Quebecor Inc., said in a statement Friday that the company would bring its competitive force to bear on the national market.
“Just as Videotron has done in the Québec market, Freedom will promote competition by competing aggressively with Canada’s wireless carriers in order to lower prices for the benefit of consumers,” he said.
‘Unprecedented’ conditions added to the deal
In an effort to get ahead of criticisms that the merger would hurt competition, Champagne said Friday his approval is subject to 21 “unprecedented and legally enforceable” conditions.
Videotron’s wireless prices in Quebec, which tend to be 20 per cent lower than other parts of the country, must be expanded out of the province and into Western Canada as part of Champagne’s stated goal of creating a fourth-national player to drive down Canadians’ phone bills.
“The way to drive down prices is through competition. Having a fourth, strong national player does lead to lower prices,” he told reporters Friday.
Rogers is also expected to keep a headquarters in Calgary and add 3,000 new jobs in Western Canada, both of which are expected to be maintained over the next 10 years. Champagne did not say whether any job protections are extended to Rogers’ operations in Eastern and Central Canada.
The newly merged telecom giant is also expected to spend $5.5 billion expanding 5G network coverage and invest $1 billion in connections for rural, remote and Indigenous communities.
The $6.5 billion in spending and promises to add jobs and maintain the western HQ were included in the original announcement from Rogers and Shaw in March 2021.
Violating the conditions would come with “significant” penalties of up to $200 million in fines for Videotron and up to $1 billion in charges for Rogers, Champagne said.
He added that all of these conditions are set out in a legal undertaking he called a “contract with Canadians” and are subject to arbitration if the companies violate the agreement.
Champagne said he would watch the telcos “like a hawk” on Canadians’ behalf.
Michael Geist, Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, argues that the significant number of conditions placed on the deal amount to a tacit confession from the federal government that what they’ve approved won’t benefit consumers.
“It’s largely illusory,” he tells Global News.
“Let’s recognize we’re talking about a 10-year horizon. We don’t even know who’s going to be in the government at that stage, much less what the environment will look like.”
The NDP’s Masse, too, was skeptical of Champagne’s conditions and critical of the proposed penalties, which he said would end up being paid by Rogers and Videotron’s customers on their bills, not by the companies or their executives.
“He may be watching them like a hawk, but I mean, he’s left Canadian consumers to be basically open to the buzzards,” Masse said.
Champagne’s office confirmed in a statement to Global News on Friday that the companies’ agreement is signed with the Government of Canada, not the minister himself, and will remain in force even if the Liberals leave office over the next decade.
Minister threatens more regulation if prices don’t drop
The industry minister also announced a freeze on the transfer of large amounts of spectrum from major carriers for an indeterminate period and a comprehensive review of Canada’s spectrum transfer rules for the first time in a decade to ensure the framework is appropriate for the modern telecom landscape.
If prices do not materially lower following the completion of this deal, Champagne threatened that he might seek more legislative powers to force companies to offer Canadians better deals.
What Rogers purchase of Shaw will mean for Canadian consumers
“Everything is on the table,” he said.
Michael Osborne, a competition lawyer with Cozen O’Connor in Toronto, says the conditions imposed on the deal largely amount to “political theatre” but they are “real.” He says the conditions reinforce actions Rogers already said it would take, like maintaining a presence in Western Canada.
He says the introduction of Videotron, which will be incentivized on its own to offer cheaper rates to compete in the market, will result in less concentration in Canada, rather than more.
As for Champagne’s suggestion that he could seek more powers to force telecom prices lower in the years to come, Osborne says the impulse to regulate the market rather than letting competition run its course is misguided.
“There seems to be a bit of a view out there that we should regulate prices charged by businesses in our economy. We’re seeing that in telecom. We’re seeing that from people in relation to groceries,” he says.
“Having the government decides what prices are going to be is not historically a winning formula for having an efficient, competitive, strong economy that grows.”
How did we get here?
Champagne’s sign-off was the final regulatory hurdle needed to get the deal across the finish line.
The Competition Tribunal approved the deal on Dec. 30, 2022.
The Competition Bureau had appealed the tribunal’s decision, citing what it claimed were legal errors in the judgment. But a Federal Court of Appeal judge ruled last month that the Bureau’s arguments did not meet the threshold needed to overturn the ruling.
The Bureau had lobbied against the merger, saying the transaction would hurt competition in the telecom industry in Canada.
The Competition Tribunal concluded that the merger was not likely to result in higher prices for wireless customers in Western Canada, and that the Tribunal was satisfied the plan to sell Shaw’s Freedom Mobile to Videotron was adequate to ensure competition isn’t substantially reduced.
Osborne believes that if Champagne had shut down the deal — disagreeing with the call made by a judicial body — Canada’s reputation as a good place to do business could be at risk.
“It would be catastrophic for merger review in this country,” Osborne says.
“It would mean that instead of a system which is governed by law and by an objective, measurable standard … that in fact, merger review in this country is based on how many letters the minister got opposing the deal.”
But Keldon Bester, co-founder of the Canadian Anti-Monopoly Project, tells Global News that the deal’s approval reflects the “poor state of Canada’s competition laws” and called for a boost in oversight that would prevent industry consolidation like this in the future.
While he says it’s “entirely possible” that Videotron will become a strong national competitor, there are many questions about the effectiveness of the conditions imposed on the deal and whether the long-term drop in prices described by Champagne will come to pass.
Finance Minister Chrystia Freeland said Friday that, like the 2023 budget tabled earlier in the week, the Liberal government’s focus is on “affordability” for consumers.
“Our focus is very much on Canadians. It’s on Canadian consumers. It’s on imposing tough conditions to ensure that Canadian consumers get the services they need at prices they can afford,” she said.
— with files from Global News’s Anne Gaviola, David Baxter
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