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.
HALIFAX – Ottawa is negotiating a $500-million bailout for Nova Scotia’s privately owned electric utility, saying the money will be used to prevent a big spike in electricity rates.
Federal Natural Resources Minister Jonathan Wilkinson made the announcement today in Halifax, saying Nova Scotia Power Inc. needs the money to cover higher costs resulting from the delayed delivery of electricity from the Muskrat Falls hydroelectric plant in Labrador.
Wilkinson says that without the money, the subsidiary of Emera Inc. would have had to increase rates by 19 per cent over “the short term.”
Nova Scotia Power CEO Peter Gregg says the deal, once approved by the province’s energy regulator, will keep rate increases limited “to be around the rate of inflation,” as costs are spread over a number of years.
The utility helped pay for construction of an underwater transmission link between Newfoundland and Nova Scotia, but the Muskrat Falls project has not been consistent in delivering electricity over the past five years.
Those delays forced Nova Scotia Power to spend more on generating its own electricity.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
