Budget Sense

The rage of late has all been about the insane interest rates and what it is doing to home owners, especially those who are due for a renewal on their mortgage. In some cases, people are having to pay a min of $1K extra if not more on their renewal. Think about having to find an extra $1K or more in your budget, without changing anything else in your income . Not easy!

But there has also been another positive side to the story that we are not talking about much and I think it is time we did, or at least briefly remind people about it. It is about the high interest rates you get for keeping your money in a savings account. Average savings account rates are at a historical 20+ year high, with some banks paying as much as 5.75% for 1 year GICs as of September 2023: EQ Bank is paying 5.75% for 1 year GIC, while Motiv Financial and Tangerine are paying similar rates at 5.6% and 5.5% respectively for 1 year GICs.

At such historically high rates, do you really need to be fiddling with stocks, which have generally been under-performing this year, at least on this side of the border on the TSX? Even if you have a small amount of money, it is worth your time and comfort to just put it in a 1 year GIC, then forget it about, hoping that things will be more calm in a year. For example, if you are one of the lucky ones and have at least $10K laying around that you don’t need at the moment, putting that in 1 year 5.5% GIC would get you an extra $550 a year from now which is not too bad considering the totally passive nature of such an investment.

Certainly, here’s an expanded version:

However, when considering your financial strategy, it’s essential to weigh your options carefully. If you find yourself carrying high-interest debt, it often makes more sense to prioritize paying down that debt over stashing your funds in a high-interest savings account. The key factor here is the interest rate: if the interest you’re accruing on your debt is higher than the interest you could potentially earn in the savings account, it’s generally more financially prudent to channel your resources towards reducing the debt burden. This approach not only saves you money on interest payments but also helps you regain financial stability and move closer to your long-term financial goals. It’s all about making informed decisions that align with your unique financial situation and objectives.

In conclusion, the current financial landscape offers a unique blend of opportunities and challenges. While soaring interest rates may pose concerns for mortgage holders, they also bring a silver lining in the form of historically high savings account rates. It’s a time when strategic financial decisions can make a substantial difference in one’s financial well-being. Whether you choose to lock in a high-rate GIC for a year or explore other investment avenues, the key lies in leveraging these opportunities to secure your financial future. By making informed choices and balancing your financial priorities, you can harness the potential of these remarkable times to your advantage and achieve your long-term financial goals. So, consider the options, seize the opportunities, and make your money work for you, all while embracing a brighter financial future.