This page provides a snapshot of today’s key interest rates in Canada, including current mortgage rates, current GIC rates, savings account rates, and lending rates. Rates are updated frequently to reflect current market conditions and lender offerings.
While Canada’s major banks operate under a federal framework, mortgage lending is also shaped by provincial jurisdiction over property and civil rights. This creates a patchwork of regional regulations—from Quebec's unique Civil Code to specific provincial consumer protection acts—that can determine which lenders are available in a given area and how they compete, ultimately causing interest rates to vary by location. Borrowers can check current mortgage rates in Ontario, as well as current mortgage rates in British Columbia.
Any analysis or commentary reflects the opinions of WOWA.ca analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
The calculators and content on this page are for general information only. WOWA does not guarantee the accuracy and is not responsible for any consequences of using the calculator.
Financial institutions and brokerages may compensate us for connecting customers to them through payments for advertisements, clicks, and leads.
Interest rates are sourced from financial institutions' websites or provided to us directly. Real estate data is sourced from the Canadian Real Estate Association (CREA) and regional boards' websites and documents.
Interest Rates Canada
An interest rate is the percentage charged or earned on a borrowed or invested amount. It is typically expressed as an annual percentage of the principal and determines the cost of borrowing money or the return on an investment. Central banks use interest rates as a key tool to manage monetary policy and promote economic stability.
1- Components of Interest Rate
A loan is a transaction in which one party agrees to postpone the consumption of some of their resources, while another party seeks to bring forward the consumption of resources they expect to earn in the future. The party postponing consumption becomes the lender, and the party advancing consumption becomes the borrower.
Because people are often impatient, lenders typically require compensation for delaying their consumption. At the same time, borrowers are often willing to give up more of their future resources than they can receive today. This concept is known as Irving Fisher’s impatience theory of interest.
But there is more to interest rates than impatience alone. In other words, lenders have reasons for charging interest that go beyond simple time preference. Loans are rarely made in the form of goods or services; instead, they are typically denominated in money. In the 21st century, we use fiat money, which has value by convention because it can be exchanged for goods and services.
Because of inflation, the purchasing power of money declines over time. One important role of interest, therefore, is to compensate lenders for the loss in purchasing power. Inflation is officially measured using the Consumer Price Index (CPI). You can use WOWA’s inflation calculator to see how quickly the Canadian dollar has lost value in recent history.
Even if lenders were perfectly patient and there were no inflation, interest would still play an essential role. When lending, a lender always faces the risk that a borrower may be unable or unwilling to repay their debt. Interest compensates lenders for the risk of possible default.
Finally, extending a loan requires motivation in the form of profit, as well as resources for documentation, record keeping, transactions, and other administrative tasks. Depending on the type of loan, lenders may charge these costs separately as administrative fees or include them in the interest rate.
We can summarize this discussion by breaking the interest rate into three (and potentially four) components.
Components of Interest Rate
Interest Rate = Time Value of Money + Expected Inflation Rate + Risk Premium (+ Administrative Costs).
1-1 Risk Premium
Consider a situation in which you are asked to lend $100. Suppose there is a 90% probability that the borrower will repay the loan in full and a 10% probability that the borrower will default and you will receive nothing. To avoid an expected loss, you would need to receive an amount x such that
which implies 𝑥 = 111.11. In other words, you would need to charge a risk premium of 11.11% for the expected value of the repayment to equal the amount originally lent.
In many lending products—such as credit cards and payday loans—the risk premium is often the largest component of the interest rate. In practice, however, it is difficult to precisely estimate the probability of default for an individual borrower and, therefore, the appropriate risk premium.
In a financial context, default refers to a borrower’s failure to repay a loan according to the terms specified in the loan agreement. Defaults can occur for many reasons, including job loss, insufficient income, or other financial difficulties. When a borrower defaults, a lender may attempt to mitigate losses by restructuring the loan, such as modifying the repayment schedule or terms. Successful restructuring can sometimes allow the lender to recover the full value of the loan.
If the borrower and lender are unable or unwilling to restructure the debt, the lender may pursue legal remedies, which can include seizing the borrower’s assets or garnishing their wages.
In some cases, a delinquent loan may be sold to a collection agency or a debt buyer, which then attempts to recover the debt on behalf of the original lender or for its own account. Defaulting on a loan can have serious consequences for a borrower’s credit score and may significantly reduce their ability to obtain credit in the future.
The likelihood of default depends on many factors. These include macroeconomic conditions such as the state of the job market (unemployment rates), average income levels, inflation, exchange rates, and central bank policy. Default risk also depends on borrower-specific factors, including net worth, employment stability and type, income level, and spending behavior.
There is no universal formula for predicting the probability of default. Even when the likelihood of bankruptcy can be estimated, there is no general method for precisely predicting the size of the loss resulting from a default. Yet lending is the lifeblood of a modern economy: if lending were to stop, production and consumption would contract sharply, leading to a substantial decline in living standards.
As a result, every economy contains many lenders, each of which develops its own models to estimate expected losses on individual loans and to determine the appropriate risk premium. Consequently, there is no single interest rate in an economy; instead, there are many interest rates reflecting differences in risk, loan structure, and borrower characteristics.
Loans can be either secured or unsecured. A secured loan is backed by collateral—assets pledged as security for the debt. If the borrower fails to repay the loan, the lender may seize the collateral to recover some or all of the outstanding amount.
Collateral
Common examples of collateral include real estate, vehicles, jewelry, stocks and bonds.
Collateral can also take the form of a guarantee or other security used to back a loan or line of credit. By providing the lender with a claim on specific assets, collateral can significantly reduce the risk of loss. In the event of default on a secured loan, the lender may seize and liquidate the collateral to recover the outstanding balance. By contrast, unsecured loans expose lenders to substantially higher risk, as there are no pledged assets to offset potential losses.
1-2 Expected Inflation + Time Value of Money
Expected inflation and the time value of money are conceptually distinct, but in practice they cannot be observed separately. In finance, it is often assumed that lending to the government that issues a country’s currency carries no default risk. As a result, the interest rate paid on government debt is commonly treated as the risk-free rate.
Under this framework, the risk premium on any loan can be estimated by subtracting the government’s risk-free interest rate from the interest rate charged on that loan. However, while the risk premium can be isolated in this way, there is no straightforward method for separating expected inflation from the time value of money. These two components are observed only in combination.
Interest Rate Formula
A helpful formula for the interest rate:
Rate of Interest = Risk-Free Rate of Interest + Risk Premium
1-2-1 Yield Curve
The risk-free rate of interest incorporates both expected inflation and the time value of money. Both components depend on the time horizon of the loan, meaning they vary with the length of time over which funds are lent.
For example, expected inflation in 2027 may differ substantially from expected inflation in 2028. As a result, the risk-free rate is determined separately for each maturity in the market for government debt, where securities are issued and traded for a range of terms.
In Canada, the five-year risk-free rate is commonly inferred from the yield on Government of Canada five-year bonds, while the ten-year risk-free rate is inferred from the yield on Government of Canada ten-year bonds. The collection of yields across different maturities is known as the yield curve. Below are examples of Canada’s yield curve from November 2021 and January 2023.
Under normal conditions, longer-term loans are expected to carry higher yields because uncertainty increases the further into the future one lends. As a result, yield curves are typically upward sloping, as was the case in Canada in November 2021. By contrast, Canada’s yield curve in January 2023 was downward sloping, or inverted. An inverted yield curve indicates that investors expect short-term interest rates to decline. Because falling short-term rates often accompany slowing economic activity, an inverted yield curve is commonly viewed as a signal of an increased risk of recession.
Canada Yield Curve
1-3 Administrative Fee
A lender might directly charge an administrative fee, or it might consider its administrative cost and expected profits when quoting its rate. Thus when comparing different lending products, it's best to compare their Annual Percentage Rate (APR), which includes any potential fee. You can use WOWA’s APR calculator to compare different lending products.
2- Measures and Effects of Interest Rates
2-1 Yield on Bond Assets
An asset has monetary value and can be owned by an individual or organization. Assets include cash and cash equivalents, investments, real estate, and personal property such as vehicles or equipment. They can also have intangible assets such as patents, trademarks, and copyrights.
To make it short and precise, we can define an asset as something which produces goods or services. A service is an activity or series of activities that benefit the customer without transferring ownership of a physical item. For example, an apple tree produces apples, so it is an asset, and your house provides you with shelter. The shelter is typically considered to be a service. Thus your house is an asset.
In finance, there are two important asset classes, stocks and bonds. A bond is a debt security issued by a corporation, municipality, or government entity, known as the issuer. When an investor buys a bond, they essentially lend money to the issuer, who promises to pay back the principal (or face value) of the bond when it matures and make regular interest payments (coupons) to the bondholder. The maturity date is when the issuer will pay back the bond's principal amount to the bondholder, and the coupon rate is the percentage of the bond's face value paid to the bondholder as interest.
Bonds are considered fixed-income investments and are generally less risky than stocks but riskier than cash or cash equivalents. They are often used by investors to diversify their portfolios and by companies and governments to raise capital for various projects.
2-2 Is Interest Rate a Price?
It is tempting to think of interest rate as a price for using money, as rent is a price for using a property. By considering interest as the price for the use of money, which here stands for capital, we are led to consider the supply and demand for loans. We are led to think about how much savings are accumulated in the economy and how much demand for loans exists in the economy.
But this analogy is very limited. Rental houses in any locality are approximately conserved over short periods. It takes considerable time and capital to build new homes, but when they are built, they will provide shelter for decades. As a result, short-term fluctuations in the number of dwellings in each city are limited.
In comparison, fiat money is constantly created and destroyed in our fractional reserve banking system. Each time the Bank of Canada makes a purchase, money is created, while each time the Bank of Canada sells or redeems any of its investments, money is destroyed.
It is important to note that the creation and annihilation (destruction) of money is not limited to the Central Bank. Each time a commercial bank extends a loan, money is created, and money is destroyed when a borrower pays his debt back to a commercial bank.
People's decision to defer their spending and save more puts downward pressure on interest rates, and their decision to bring forward spending and borrow more puts upward pressure on interest rates. But there is a much more potent force which affects interest rates.
2-3 Effect of Interest Rates
Before considering the most potent agent affecting interest rates, we should consider the effect of interest rates on our economy. We mentioned that bonds are debt instruments which trade in the market. Their price determines their yield, and if a central government issues them in its domestic currency, they are considered risk-free. The yield on these bonds is the risk-free rate of interest.
The assumption that lending to the government is risk-free is reasonable for many countries like Canada, England, Belgium and Denmark, which have never defaulted on their national debt in recent history. Before talking about who affects interest rates the most, we should mention the effects of interest rates on the economy.
An interest rate is an exchange rate between futures money and today’s money. As a result, higher interest rates would encourage people to postpone their consumption and investment plans. In comparison, lower interest rates would encourage economic actors to bring forward their consumption and investment plans.
An increase in spending would increase gross domestic product and employment, while a decrease in spending would decrease both gross domestic product and employment.
So initially, a low interest rate seems to be very desirable. The problem is that increased demand for goods and services produced by low interest rates can outpace the economy’s capacity for producing goods and services. This is a situation where too much money is chasing too few goods and services. This situation would result in inflation.
Inflation is harmful because it increases uncertainty regarding future inflation, complicating investment and savings decision-making. Inflation also increases the opportunity cost of keeping money, often resulting in a wealth transfer from those depending on a fixed income to asset holders. In extreme cases, inflation would cause hoarding, which in turn results in a shortage of goods and waste.
2-4 Bank of Canada’s Role in Interest Rates
Given how important money, credit and interest are to the functioning of a modern economy, it is very important to separate monetary policy from politics. In modern economies like Canada, the central bank is able to make monetary policy decisions independent of political interference.
Bank Of Canada
Bank of Canada (BoC) is a crown corporation created in 1934 by the Bank of Canada Act, around two decades after the creation of the Federal Reserve System in the US. BoC is responsible for conducting monetary policy and promotion of a safe and sound financial system in Canada. BoC is also mandated to protect the value of the national currency and to mitigate fluctuations in production, trade, prices and employment.
BoC shares are held by the Minister of Finance on behalf of the King. Members of the board of directors of the BoC are appointed by the government. BoC has signed a contract with the Department of Finance to conduct monetary policy with the aim of achieving a 2% inflation target. With a target of 2%, the bank is concentrated on bringing inflation to a range of 1% to 3%.
Bank of Canada Overnight Rate History
Bank of Canada rate over the past 6 decades. This is the interest rate BoC charges to commercial banks when they borrow money from BoC. This rate is currently 25 basis points higher than the BoC target overnight rate. The BoC target overnight rate is the rate that the BoC wants commercial banks to charge each other for overnight lending.
Bank of Canada’s main tool for implementing monetary policy and achieving its inflation target is BoC target overnight rate. Bank of Canada is currently using a floor system in which the target rate is the same rate that BoC pays to commercial banks' deposits. While the market price of government bonds determines the funding cost for term loans, the BoC overnight target determines the funding cost for day-to-day interest rates. As a result, the short end of the yield curve is set by the BoC. BoC can affect medium and long-term rates by trading financial instruments (mostly bonds). BoC's extraordinary power in affecting the bond market is because of its unlimited liquidity. The expectation for interest rates in the coming years is reported on WOWA’s interest rate forecast page.
2-5 Prime Interest Rates
Each lending institution sets a prime lending interest rate, serving as an index for its lending products. For example, we have RBC prime rate, TD prime rate, Scotia prime rate, etc. The interest rate on many credit products offered by Canadian banks is in the form of Prime Rate + Margin. This margin can be positive or negative and depends on the credit risk in the loan.
For example, variable mortgage rates, line of credit rates, HELOC rates, most car loan rates and student loan rates use this formula and are based on the prime rate. Practically all Canadian financial institutions are using the same prime rate. The BoC choreographs the movements of the prime rate. Each time BoC announces a change in its overnight target rate, Canadian banks followed by announcing a change in their prime rate. In the 21st century, with few exceptions, the magnitude of changes in the prime rate matches changes in the overnight target rate.
3- Interest Rates for Different Financial Products
Interest Rate Range for Representative financial products during second half of January 2023
Financial Product
Best Advertised Rate
15th Best Advertised Rate
Savings Account
3.75%
1.55%
Insured 5 Year Fixed Mortgage
4.39%
5.24%
Uninsured 5 Year Fixed Mortgage
4.69%
5.64%
Insured 5 Year Variable Mortgage
5.19%
6.20%
5 Year GIC
5.28%
4.30%
1 Year GIC
5.30%
4.75%
Uninsured 5 Year Variable Mortgage
5.45%
6.35%
3-1 Credit Card Interest Rates
Credit cards are unsecured and very convenient to use. At the same time, most credit cards in Canada have high interest rates, typically around 20% per year. This high interest rate prevents financially informed and well-off consumers from using their credit cards for borrowing. They use credit cards for spending but pay their monthly bill to avoid interest. Thus credit card borrowers are more likely to default on their debt compared with the average consumer. Yet there are some credit cards with relatively low interest rates.
At large financial institutions, this margin is often small or even negative. This is because larger Canadian banks often have a higher administrative cost of issuing the GIC and access to low-cost sources of money like chequing accounts. Smaller financial institutions often do not have as much access to low-cost money and are thus willing to offer a higher margin to attract more GIC investors.
So if you shop around, you can receive an interest rate higher than the risk-free rate. The catch is that you won’t be able to access your GIC money before the end of its term.
3-3 Auto (Car) Loan Interest Rates
Car loan rates have a wide distribution. Technically a car loan is a secured loan, but it is more difficult to possess a car than to possess financial assets or to possess real estate. Thus from a lender's perspective, they are the least secure of secured loans. Yet you might see very low rates for some new cars when a car company engages in providing financing to facilitate the sale of its products.
3-4 Mortgage Interest Rates
A secured loan with real estate as its collateral is called a mortgage. In terms of volume, mortgages are the largest lending product offered by Canadian financial institutions. When taking out a mortgage, a borrower has to make an important decision. Do they want to pay interest based on the short end of the yield curve or based on some point in the middle of the yield curve?
Variable-rate mortgages and adjustable-rate mortgages both offer rates at the short end of the yield curve, while fixed-rate mortgages offer rates based on a point in the middle of the yield curve. If you choose either a variable interest rate or an adjustable interest rate mortgage, you will be charged an interest = Prime Rate + Delta where the delta will stay the same during your mortgage term while the Prime Rate might change by your financial institution any day based on changes to the short end of the yield curve. While in a fixed-rate mortgage, the interest rate will stay the same during your mortgage term. Mortgage interest rates are expected to stay at their current levels throughout the rest of 2023 while mortgage rates are expected to decline over 2024 and 2025.
3-5 Saving Account Interest Rate
Savings Accounts are a great option for keeping your emergency savings. Savings accounts in Canadian financial institutions are safe as they are insured by crown corporations like CDIC or its provincial counterparts. The most important factor determining the interest rate on savings accounts is a financial institution’s desire and need to attract your deposit. Some institutions have branded a savings account as High Interest Savings Account in order to attract more rate-sensitive customers.
3-6 Line of Credit Rate
Lines of credit in Canada almost always have a variable interest rate. In other words, their interest rate is prime rate + delta, where delta is fixed in the line of credit contract, but the prime rate can be changed by the financial institution at any time. Prime rates often change based on changes in the Bank of Canada policy rate.
Disclaimer:
Any analysis or commentary reflects the opinions of WOWA.ca analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
The calculators and content on this page are for general information only. WOWA does not guarantee the accuracy and is not responsible for any consequences of using the calculator.
Financial institutions and brokerages may compensate us for connecting customers to them through payments for advertisements, clicks, and leads.
Interest rates are sourced from financial institutions' websites or provided to us directly. Real estate data is sourced from the Canadian Real Estate Association (CREA) and regional boards' websites and documents.
