By Robb Engen, Boomer & Echo
It’s easy to see how savers feel punished in today’s low interest rate environment. You have to look hard to find a daily savings account that pays more than one per cent.
Fixed income investments aren’t much better, with 5-year GICs barely touching 2 per cent. All of this means parking your short-term savings will do little more than keep up with inflation – you’re treading water, at best.
Rates have fallen steadily for a quarter century
We’ve seen a steady decline in rates for the past 25 years – around the time when the Bank of Canada adopted its inflation-control target to preserve the value of money by keeping inflation low, stable, and predictable. In January 1991, the overnight rate was 10.88 per cent, the interest paid on daily savings was 9.66 per cent, and inflation ran at 6.9 per cent. By 2002, the overnight rate fell to 2.25 per cent, daily savings interest dropped to 1 per cent, and inflation held steady at a now familiar 1.4 per cent.
Related: Can you succeed with an all-GIC portfolio?
So should we long for the days when GICs paid 10 per cent or more? Are low rates really punishing savers? Hardly. Continue Reading…