The Bank of Canada just announced they would be raising benchmark interest rates to 1.75% across the country, which is up from 1.5%. The raise has to do with meeting inflation targets and actually is a sign that our economy is doing well.
What the benchmark interest rate hike really means is that interest on everything like mortgages, bank and car loans, and savings or guaranteed investments accounts, will be going up. That has a huge impact on millennials, both in a good and a bad way.
The Bank of Canada is a government agency that sets guidelines for other financial institutions in the country. When they raise the benchmark or guideline for interest rates, banks across the country including TD, CIBC, and Scotiabank also raise their rates on any loans or investments.
If you have a mortgage or loan with a fixed interest rate, this isn't going to affect you. But, if you have a variable interest rate it's a completely different story. If you have a variable interest rate on anything from a line of credit to a student or car loan, you will be seeing an increase.
This will especially affect your monthly payments, which will most likely have to increase if you want to keep up with paying off your loans in a timely manner. For example, if you had $20,000 in student loans to re-pay with a variable interest rate, your monthly payments may be around $217 with an interest rate of 5.5% - but after the increase, your new monthly payment is just over $219.
While that doesn't seem like a lot, over time it is a difference of over $300 on your loan and as interest rates continue to rise, that amount only will only get higher. Also the bigger the loan you took out, the more these rising interest rates would affect you.
Of course, a big area that takes a hit when interest rates rise is mortgages, specifically variable rate ones. While many millennials don't have mortgages because let's face it, the housing market is completely crazy, rising interest rates mean it will be trickier to get one going forward.
It's not all bad news, though. If you save money at your bank either through a tax-free savings account or a guaranteed investment certificate, the amount of interest you receive on that account will also rise, so you'll see more money coming in monthly.
This is the third interest rate hike that the Bank of Canada has announced this year. But, while that may sound scary to some, growing interest rates actually mean a growing Canadian economy in the long run which, in turn, is good for all of us.