Prime Rate in Canada - PiggyBank (2023)

In Canada, the prime rate is currently 6.70%.

The prime rate is the interest rate that banks and other financial institutions charge their most creditworthy customers.

What Causes the Prime Rate to Change?

The prime rate changes mainly in response to the Bank of Canada’s (BoC) adjustment to its target for theovernight rate(sometimes called the policy interest rate).

The overnight rate is the interest rate that private banks charge when they lend to one another.

Therefore, to understand how and why the prime rate shifts, it’s crucial to know how and why the BoC changes its policy interest rate.

As explained in theBank of Canada Act, the BoC’s role is to “promote the economic and financial welfare of Canada.”

Its primary responsibility is to manage Canada’s monetary policy by influencing the supply of money that circulates in the economy.

In general, the BoC likes to see inflation around 2%.

Therefore, if the economy grows too rapidly, it’ll raise its lending rate, also known as thebank rate, to curb inflation.

The bank rate is the interest rate private financial institutions incur when borrowing from the BoC.

Conversely, if the economy is in a slump and inflation dips below 2%, the BoC will lower its lending rate to stimulate more production and borrowing.

The effect increases the money supply, thereby boosting inflation.

So, why do these BoC rate adjustments trickle down to your local bank?

The reason is that private banks pay interest on money they borrow, just like any retail consumer.

Should their borrowing costs change, so will the rates they charge on loans they issue to their customers.

Private banks can choose between borrowing funds from the BoC or other private banks at the overnight lending rate.

They usually opt for the latter option because it’s cheaper.

At the time of this writing, the BoC’s lending rate is 4.75%, and the overnight rate is 4.5%.

Should the BoC lending rate shift, whether up or down, so will the overnight rate.

(Video) How Interest Rates Are Set | Bank Of Canada Prime Rate Explained

Let’s say the BoC raises its lending rate.

In that case, the change will result in a corresponding increase in the overnight rate.

As private banks borrowing costs rise, they’ll offset the extra expense by hiking their prime rate.

And since the prime rate acts as a benchmark for setting rates on variable-rate loan products, the banks’ customers will incur higher interest charges.

New fixed-rate loans will become more expensive as well.

The opposite occurs when the BOC slashes its lending rate: the overnight rate will drop, decreasing borrowing costs for private banks.

As a result, they’ll pass on these savings to their customers by charging lower rates on variable-rate loans.

They’ll also offer better deals on fixed-rate loans.

Did You Know?

Unique circumstances can trigger emergency policy rate adjustments. For example, during the COVID-19 pandemic, the BOC rapidly cut its lending rate to keep the Canadian economy afloat.

How Does the Prime Rate Affect Mortgages?

The impact that the prime rate has on mortgages and mortgage-related products depends on whether it’s fixed-rate or variable-rate.

Fixed-Rate Mortgage

An active fixed-rate mortgage remains unaffected by changes in the prime rate for its term.

The reason is that the rate you and your lender agreed upon at the beginning of the loan term is locked in.

For example, suppose you recently acquired a five-year fixed-rate mortgage at 5.75%, and the prime rate suddenly spikes.

In that case, you’ll continue to pay interest at the 5.75% rate until your mortgage term ends.

A fixed-rate mortgage, thus, shields you from rising rates for a specific time frame.

However, once it’s time to renew your mortgage, things change.

Your borrowing costs will increase if the prime rate is considerably higher than five years ago.

(Video) Bank of Canada Rate vs First National Prime Rate

Since the prime rate is a benchmark for rates on all other loans, including fixed-rate mortgages, you’ll have no choice but to renew at a higher rate.

The same concept applies to first-time homebuyers looking to acquire a mortgage.

Lenders will offer either cheap or expensive financing depending on the current prime rate.

For this reason, homebuyers rush to lock in a fixed mortgage rate for as long as possible if they anticipate BoC rate hikes.

Variable-Rate Mortgage

A variable-rate mortgage is tied directly to the prime rate.

As such, any change in the prime rate will, in turn, affect a variable-rate mortgage.

Sometimes, the expression “floating rate” is used, as the interest rate is subject to change during the mortgage term.

Let’s assume the prime rate is 6%, and your newly acquired mortgage has a contract rate expressed as “prime + 0.45.”

Therefore, your current mortgage interest rate is 6.45%. If the prime rate rises to 6.5% six weeks later, your mortgage rate will increase to 6.95%.

Remember, however, thatyour payment amount will remain the same.

What will change is the portion of your payment allocated to interest versus principal.

In the above scenario, more of your payment will go toward interest charges rather than the principal.

The opposite will occur if your lender’s prime rate drops – a larger percentage will go towards the principal.

Adjustable-Rate Mortgage

The prime rate has the same impact on an adjustable-rate mortgage as it does on a variable-rate mortgage.

Should the prime rate rise, so will the interest rate you pay on your adjustable-rate mortgage.

The reverse is also true: a drop in the prime rate will result in a corresponding decrease in your adjustable mortgage rate.

However, unlike a variable-rate mortgage, your regular payments will change.

A hike in your lender’s prime rate will increase your mortgage payment’s size, while a cut will decrease it.

Home Equity Line of Credit (HELOC)

A HELOC is almost always a variable-rate product.

(Video) Bank Crisis & Inflation: The Biggest Scam In The History Of Mankind - Hidden Secrets of Money Ep 4

As such, any shift in your lender’s prime rate will affect the rate you pay on a HELOC.

Many HELOCs are structured as “Prime + 0.5%.” Therefore, if the current prime rate is 6.7%, your HELOC rate will be 7.2%.

Unlike mortgages, payments on HELOC are usually “interest only” for a set number of years (known as thedraw period). As a result, you can forego paying the principal, which makes servicing a HELOC more manageable in an environment where rates are rising.

Still, if rates climb rapidly and it’s time to repay your principal, you may struggle to make the monthly payments.

Who Sets the Prime Rate?

Each lender sets its own prime rate.

When there’s a change in the target for the overnight rate, lenders will adjust their prime rate quickly, usually within a few days.

As a result, you’ll feel the impact of any prime rate change almost immediately on your variable-rate loans.

Is the Prime Rate the Same at All Lenders in Canada?

Generally, banks and other lending institutions settle on the same prime rate.

As a result, it doesn’t matter who you conduct your banking with – the prime rate will more often than not be the same everywhere.

Banks adjust their prime rate in unison because a single factor influences it: the BOC’s target for the overnight rate.

As the overnight rate shifts, the borrowing costs change for all of them simultaneously as they lend to each other at this rate.

Should a bank keep its prime rate the same following an overnight rate hike, it’ll earn a lower profit relative to their competition due to higher borrowing costs.

Alternatively, let’s say a bank retains its current prime rate after a reduction in the overnight lending rate.

In this scenario, they’ll lose a competitive advantage since their peers will offer their customers lower interest rates on loans.

Banks typically adjust their prime rate by the same amount as the change in the overnight lending rate.

However, they’re not obligated to do so – they may deviate by choosing a rate better aligned with their financial interests.

Fun Fact

When the BOC cut its policy interest rate by 25 basis points, some of Canada’s largest banks only reduced their prime rates by 0.15 basis points. This was a rare instance where banks didn’t fully match the BOC’s rate reduction.

(Video) What is Prime Rate of Interest & Overnight Rate Of Interest? Bank Of Canada I Vikram Singla I 2022

Prime Rate History in Canada

After the Great Recession, the BoC kept its lending rate low to accommodate a recovering economy.

In 2010, the overnight rate was as low as 0.25%, resulting in a prime rate of 2.25%.

Late in the year, the overnight rate increased to 1%, where it remained until the end of 2014.

The prime rate, in turn, rose to 3%.

Though Canada’s economy was then on the road to recovery, a significant drop in oil prices caused turmoil and in response, the BoC cut its lending rate for the 2015-2017 time period, which caused the prime rate to dip as low as 2.7%.

The BoC again began to hike its lending rate in September 2017, driving the prime rate up to 3.95%.

Due to the COVID-19 pandemic, the BoC abruptly reversed course and slashed rates to support a devastated economy.

The overnight rate fell to 0.25%, resulting in a prime rate of 2.45%.

With the pandemic waning early in 2022, high inflation set in.

As a result, the BOC began a series of aggressive rate hikes to combat rising prices.

This policy caused the prime rate to soar up to 6.7% in early 2023.

Prime Rate in Canada - PiggyBank (1)

Frequently Asked Questions

  • Is Canada’s Prime Rate going to increase?
  • How often does the Prime Rate change in Canada?

Prime Rate in Canada - PiggyBank (2)

Mark Gregorski
Mark is a freelance writer who specializes in covering personal finance topics related to investing, mortgages, credit cards, and more.

(Video) Will banks lower their prime lending rate?

He is passionate about educating people on how the financial markets work and providing tips to help them better manage their money. Mark holds a bachelor’s degree in finance from the Northern Alberta Institute of Technology and has more than a decade of experience as an accountant.

Outside of writing and finance, he enjoys playing poker, going to the gym, composing music, and learning about digital marketing.


What is Bank of Canada prime rate right now? ›

The Prime rate in Canada is currently 6.70%. The Prime rate is the interest rate that banks and lenders use to determine the interest rates for many types of loans and lines of credit.

What will the prime rate be in 2023 Canada? ›

As of May 2023, the market consensus on the mortgage rate forecast in Canada is for the Central Bank to hold its prime rate at 4.50% as long as inflation remains on its downward trend. As of January 25, 2023 the Central Bank of Canada has indicated a conditional pause on increasing the prime interest rate.

Will the Bank of Canada prime rate go down? ›

With inflation under control and a sluggish job market, we anticipate that the Bank of Canada will gradually lower its policy rate toward the neutral level. We expect the policy rate to reach 3.25% by the end of 2024 and 2.5% by the end of 2025.

How much higher is prime rate Canada? ›

Canada Prime Rate is at 6.70%, compared to 6.70% last week and 3.20% last year. This is lower than the long term average of 7.18%.

What is bank prime rate in USA? ›

What Is the Current Prime Rate? As of March 22, 2023, the current prime rate is 8.00% in the U.S., according to The Wall Street Journal's Money Rates table. This source aggregates the most common prime rates charged throughout the U.S. and in other countries. The federal funds rate is currently 5.00% to 5.25%.

What is Canada's current interest rate? ›

The last 13 months saw the Bank of Canada rapidly increase its policy rate from 0.25% in March 2022 to the current level of 4.5%, bringing higher prime rates and higher variable and adjustable mortgage rates.

What will prime interest rate be in 2024 Canada? ›

The Bank of Canada's benchmark interest rate is expected to fall back to around 3.00% by the end of 2024, according to a median of responses from market participants.

What will interest rates be in 2023 2024 Canada? ›

When is the next Bank of Canada rate increase and what can I expect?
Variable Rate Interest Forecast 2023 to 2028 (as of May 2023)
9 more rows
4 days ago

Will Bank of Canada raise rates again in 2023? ›

BENGALURU, April 6(Reuters) - The Bank of Canada will keep its key interest rate steady at 4.50% through 2023, according to most economists polled by Reuters, with an even smaller minority now expecting an interest rate cut by year-end than a poll taken a month ago.

Is Canada prime rate changing? ›

When was the last prime rate change? The Bank of Canada last increased the overnight rate to 4.5% on January 25, 2023, a change of 0.25%. This caused the current prime rate in Canada to increase the same amount – from 6.45% to the current 6.7%.

How high will interest rates go in 2023? ›

With the next Federal Reserve meeting coming up on May 3, 2023, it's uncertain if the Fed will keep interest rates in a holding pattern through the spring. Both the Fed and experts are predicting another 0.25% rate hike for May.

Is inflation slowing down in Canada? ›

Inflation fell from its peak of 8.1% last year to 4.3% in March. We expect it will decline to around 3% this summer. This is good news and shows that interest rate increases are working to rebalance the economy.

How high is prime rate expected to go? ›

US Prime Rate Forecast (I:USPR)

US Prime Rate Forecast is at 5.76%, compared to 5.76% last quarter and 5.75% last year. This is lower than the long term average of 5.82%.

Who controls the prime rate in Canada? ›

The country's official prime rate is calculated by the Bank of Canada using a mode average of the Big 6 banks' individual prime rates. This rate is published by the BoC on a weekly basis, but typically only changes following adjustments to the central bank's overnight target rate.

What is the difference between prime rate and Bank of Canada rate? ›

The prime rate (also referred to as the prime lending rate) is an interest rate set by large Canadian financial institutions. Their prime rates are based on the Bank of Canada's overnight or policy interest rate, which is the average interest rate for one-day loans between financial institutions.

What is the highest prime interest rate in US history? ›

What was the highest prime rate? The highest prime rate was 21.5%, reached on December 19, 1980.

Who benefits from prime rate? ›

The prime rate is the current interest rate that financial institutions in the U.S. charge their best customers. These customers have excellent credit, and are eligible for this optimal rate because their loans carry the lowest risk for their financial institutions.

Do banks borrow money at prime rate? ›

Banks generally use a fed funds rate + 3 to determine the current prime rate. The rates for mortgages, small business loans, and personal loans are based on the prime rate.

Who has the best interest rate in Canada? ›

The best banks in Canada for savings accounts are the ones that pay the best everyday rates of interest and charge the lowest fees. These include Manulife Bank, EQ Bank, Oaken Financial, and Alterna Bank.

When was the last prime rate change in Canada? ›

Canadian Prime Rate
January 26,20236.70%
June 2, 20102.50%
April 22, 20092.25%
March 04, 20092.50%
36 more rows

What will the prime rate be in 2026? ›

Mortgage Interest Rate Projected Forecast 2026. The 30 Year Mortgage Rate will continue to rise further in 2026. The 30 Year Mortgage Rate forecast at the end of the year is projected to be 17.81%.

What is the interest rate forecast for 2023 and 2024? ›

Meanwhile, Scotiabank predicted as of 28 April the US interest rates to stay at 5.25% for 2023, and fall to 3.5% in 2024. In the short-term, analysts believed that the Fed is likely to keep the current rate on hold for the near future, provided inflation doesn't spike again.

Where will interest rates be in 2024 Canada? ›

The bank's survey of market participants, the second iteration of the poll first released in February, showed a median of the participants forecasting interest rates dropping to 3.0 per cent by the end of 2024.

What will the interest rate be in 2025 in Canada? ›

There is a plausible path for interest rates that would bring inflation back to target while also paring back excess demand just enough without slowing the economy to the point of tipping into a recession. That path would see the Bank's policy rate plateau at 3.75 per cent before coming down to 2.5 per cent by 2025.

How high will Fed raise interest rates in 2024? ›

More than half (or 53 percent) of experts polled for Bankrate's First-Quarter Economic Indicator poll say the Fed's key benchmark interest rate will peak in a target range of 5-5.25 percent, suggesting officials will likely only hike rates one more time. But that doesn't mean rate cuts are around the corner.

What is the Bank of Canada inflation forecast for 2024? ›

Inflation in Canada remains high but should come down quickly to around 3% in the middle of this year because of lower energy prices, improved supply chains and restrictive monetary policy. The Bank projects that inflation will reach the 2% target by the end of 2024.

What is the interest rate decision for Canada 2023? ›

The Bank of Canada held the target for its overnight rate unchanged at 4.5% in its April 2023 meeting, as previously signaled, and stated that it will continue to monitor the latest economic data for future decisions on the policy rate.

How will Canadian banks do in 2023? ›

The Canadian banking outlook for 2023 is affected by a challenging operating environment featuring muted economic growth and an increasing likelihood of a recession.

What are the next three rate policy dates for the Bank of Canada? ›

Recent data
Date*Target (%)Change (%)
March 8, 20234.50---
January 25, 20234.50+0.25
December 7, 20224.25+0.50
October 26, 20223.75+0.50
8 more rows

How often can Bank of Canada change prime rate? ›

When will the Prime Rate change? The Bank of Canada makes interest rate announcements eight times a year. They can change the overnight rate during these announcements, which impacts the prime rate.

Will mortgage rates go down 2023? ›

However, many mortgage experts in the housing market space expect rates will trend downward later in 2023.

Will mortgage rates go down in 2023 Canada? ›

Weaker economic growth and higher mortgage rates continue to slow the economy in 2023. As a result, we expect a price decline between 2022 and 2023, but the average price will not revert to pre-pandemic levels. However, we expect this decline to bottom out sometime in 2023.

Where will interest rates be at the end of 2023? ›

1) Interest-rate forecast.

We project a year-end 2023 federal-funds rate of 4.75%, falling below 2.00% by mid-2025. That will help drive the 10-year Treasury yield down to 2.25% in 2025 from an average of 3.5% in 2023. We expect the 30-year mortgage rate to fall from an average 6.25% in 2025 to 4% in 2025.

Will US interest rates rise again in 2023? ›

The Fed raises interest rates again in what could be its final attack on inflation. Federal Reserve Chair Jerome Powell speaks during a news conference at the Federal Reserve in Washington, D.C, on March 22, 2023. The Fed raised interest rates again Wednesday but signalled it may be the last hike for a while.

What is the Bank of Canada rate of inflation? ›

The Bank now projects Canada's economy to grow by 1.4% this year and 1.3% in 2024 before picking up to 2.5% in 2025. CPI inflation eased to 5.2% in February, and the Bank's preferred measures of core inflation were just under 5%.

What is the average inflation rate in Canada? ›

During the observation period from 1960 to 2022, the average inflation rate was 3.8% per year. Overall, the price increase was 886.36%. An item that cost 100 dollars in 1960 costs 986.36 dollars at the beginning of 2023. For April 2023, the year-over-year inflation rate was 4.4%.

What is Canada's inflation update? ›

The Consumer Price Index (CPI) rose 4.4% year over year in April, following a 4.3% increase in March. This was the first acceleration in headline consumer inflation since June 2022.

What is the interest rate prediction for 2024? ›

These organizations predict that mortgage rates will decline through the first quarter of 2024. Fannie Mae, Mortgage Bankers Association and National Association of Realtors expect mortgage rates to drop through the first quarter of 2024, by half a percentage point to about nine-tenths of a percentage point.

How long will interest rates stay high? ›

'I believe by the end of 2023 we will see rates start to fall with a target of between 2.5 to 3 per cent in 2024. 'I believe if the base rate can get back to circa 2.5 per cent, then we will see rates hovering around that mark with a return to products that have not been seen in the mortgage industry for some time.'

Does prime rate go down in a recession? ›

Interest rates typically fall once the economy is in a recession, as the Fed attempts to spur growth. Refinancing debt and making more significant purchases are ways to take advantage of lower interest rates.

Who owns the Bank of Canada? ›

The Bank of Canada is a special type of Crown corporation, owned by the federal government, but with considerable independence to carry out its responsibilities. The Governor and Senior Deputy Governor are appointed by the Bank's Board of Directors (with the approval of Cabinet), not by the federal government.

Who sets rates in Canada? ›

Typically, the Bank of Canada adjusts the policy interest rate on eight predetermined dates throughout the year.

Who sets the US prime rate? ›

How is the prime rate determined? The prime rate isn't determined by the Fed, but instead by individual banks. However, the prime rate is influenced by something called the federal funds rate, which is set by the Federal Open Market Committee consisting of twelve Fed members.

How much do banks add to prime rate? ›

The Federal Reserve can adjust its monetary policy to encourage interest rates to stay within this target range. Banks generally add 3% to the federal funds target rate when setting the prime rate for their customers.

Will Canadian banks increase prime rate? ›

In January 2022 Bank of Canada Gov. Tiff Macklem announced to reporters that "interest rates will need to increase to control inflation. Canadians should expect a rising path for interest rates." And they did. The central bank raised interest rates eight times in 12 months, only pausing the hike in March 2023.

Why would the Bank of Canada raise the prime rate? ›

We aim for inflation of 2% a year. It's what we mean by price stability. When the economy is overheated and inflation is well above 2%, higher interest rates help steer inflation back toward our target.

What is the prime rate in January 2023? ›

As of January 2023, the prime rate charge by U.S. banks was 7.5 percent - a sharp increase compared to a year before that, when the rate charged was about 3.25 percent. The prime rate is a benchmark interest rate used by banks for various loan products, such as credit cards and personal loans.

How high will interest rates go Canada 2024? ›

Expectations for the benchmark rate at the end of 2024 range from a low 2.50% to 3.50%. The respondents also pointed to weaker housing markets as the top risk facing economic growth in Canada, followed by tighter financial conditions and tighter monetary policy.

Where will interest rates be in 2023 Canada? ›

On Wednesday, March 8th, 2023, The Bank of Canada announced that it will hold the key interest rate at 4.50%, for the first time in over a year. This is anticipated to continue until the end of this year, when the Bank of Canada is expected to begin lowering interest rates again to stimulate the economy.

How high will prime rate go in 2023? ›

Rates will keep rising in 2023

In December, the FOMC projected that the median Federal Funds Rate (FFR) in 2023 would be 4.6 percent. This projection was revised in March, with the FOMC projecting the FRR to hoover between 5.1 and 5.6 percent in 2021.

What is the highest prime rate has ever been? ›

What was the highest prime rate? The highest prime rate was 21.5%, reached on December 19, 1980.

What will prime interest rate be in 2023? ›

Historical Prime Rate
Effective DateRate
20 more rows

Are interest rates expected to rise or fall in 2023? ›

Mortgage rates could decrease next week (May 29-June 2, 2023) if the mortgage market takes a cautious approach to a possible recession. However, rates could rise if lenders account for the Federal Reserve taking measures to counteract inflation or if a global event brings economic uncertainty.

Will interest rates go down in 2024? ›

These organizations predict that mortgage rates will decline through the first quarter of 2024. Fannie Mae, Mortgage Bankers Association and National Association of Realtors expect mortgage rates to drop through the first quarter of 2024, by half a percentage point to about nine-tenths of a percentage point.

Will interest rates go down in 2023? ›

1) Interest-rate forecast.

We project a year-end 2023 federal-funds rate of 4.75%, falling below 2.00% by mid-2025. That will help drive the 10-year Treasury yield down to 2.25% in 2025 from an average of 3.5% in 2023. We expect the 30-year mortgage rate to fall from an average 6.25% in 2025 to 4% in 2025.


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