The Bank of Canada’s interest rate decisions can affect many parts of your financial life, from mortgage payments and borrowing costs to savings accounts and investments.
But what exactly is the Bank of Canada’s policy interest rate, why does it change, and what does a rate increase or decrease mean for you? Understanding how interest rates work can help you make more informed decisions about borrowing, saving, budgeting and your overall financial plan.
What is the Bank of Canada policy interest rate?
The Bank of Canada uses its target for the overnight rate—also called the policy interest rate—as its primary tool for managing inflation and supporting economic stability.
The overnight rate influences the interest rates that financial institutions charge each other for short-term borrowing. Changes to the policy rate can then affect other interest rates across the economy, including prime rates and some borrowing and savings rates. The Bank of Canada makes scheduled interest rate announcements throughout the year. The Governing Council considers economic conditions, inflation and other factors when deciding whether to raise, lower or maintain the policy rate.
Important: The Bank of Canada does not directly set the mortgage rate you receive from your financial institution. Mortgage rates are influenced by several factors, including the policy rate, bond yields, market conditions, the type and term of mortgage and your individual financial circumstances.
Why does the Bank of Canada raise interest rates?
One reason the Bank of Canada raises its policy rate is to help bring inflation under control. When interest rates increase, borrowing generally becomes more expensive. Higher borrowing costs can encourage households and businesses to spend less and save more, which can reduce demand in the economy.
The goal is not simply to make borrowing more expensive. The Bank uses monetary policy to help maintain price stability over time. For example, when inflation is too high, higher interest rates can help slow demand and bring inflation back toward the Bank of Canada's target.
Why does the Bank of Canada lower interest rates?
The Bank can also lower its policy rate when economic conditions warrant it. Lower interest rates can reduce borrowing costs for some households and businesses, which may encourage spending and investment. Lower rates can also affect savings and investment returns. The impact isn't identical for everyone. Someone with variable-rate debt may see a different effect from someone with a fixed-rate mortgage or someone who primarily holds savings and GICs.
How do interest rate changes affect your mortgage?
Your mortgage is one of the areas where changes in interest rates can have a significant impact.
Variable-rate mortgages
A variable-rate mortgage is generally linked to your financial institution's prime rate. When the institution's prime rate changes, the interest rate on a variable-rate mortgage may change as well. Depending on the mortgage structure, this can affect your monthly payment, the amount of each payment going toward interest and principal, or the length of time required to repay the mortgage.
At YNCU, variable-rate mortgages are linked to YNCU Prime, and certain mortgage products may provide the option to convert to a fixed-rate mortgage.
Fixed-rate mortgages
With a fixed-rate mortgage, your interest rate is generally locked in for the length of your mortgage term. That means a change in the Bank of Canada's policy rate does not normally change your mortgage rate during your existing fixed term.
However, interest rates can affect you when it is time to renew your mortgage. This is why it's important to look ahead to your renewal date and understand how a different interest rate could affect your budget.
How do interest rates affect other types of borrowing?
Changes in interest rates can also affect other forms of borrowing.
Depending on the product, interest rate changes may affect:
- Lines of credit
- Personal loans
- Variable-rate loans
- Credit cards
- Car loans
- Home equity borrowing
Variable-rate borrowing is generally more directly affected by changes in a lender's prime rate. Fixed-rate borrowing is generally less immediately affected because the rate is set for a specific term. If you have debt, consider reviewing the interest rates you're paying and prioritize high-interest debt where appropriate.
How do higher interest rates affect savings?
Interest rate changes don't only affect borrowers. Higher rates can create opportunities for people who are saving money.
Savings accounts, GICs and some other interest-bearing investments may offer higher rates when overall interest rates are higher. However, rates vary by product and financial institution and can change over time. If you're saving for a short- or medium-term goal, consider the amount of risk you're comfortable taking, when you'll need the money and whether you need access to your funds. A GIC, for example, may provide a predictable return for a specified term, while other investments may fluctuate in value.
The right choice depends on your goals, time horizon and financial circumstances.
What does a Bank of Canada rate change mean for my investments?
Interest rate changes can affect different investments in different ways. For example, changes in interest rates can influence bond prices, borrowing costs, economic activity and investor expectations. Stock markets can also respond to changes in interest rates, although there are many factors that influence investment markets. This means you shouldn't make an investment decision based solely on whether the Bank of Canada has raised or lowered its policy rate.
If your investments are designed for a long-term goal, short-term market movements may be only one part of the bigger picture. Instead of reacting to every rate announcement, consider whether your investment strategy continues to match your goals, time horizon and risk tolerance. If you're unsure, consider speaking with a qualified financial professional.
How can you prepare for changing interest rates?
You can't control where interest rates go, but you can take steps to make your finances more resilient.
Review your budget
Higher borrowing costs or everyday expenses can put pressure on your monthly cash flow. Review your budget regularly and look for opportunities to reduce unnecessary expenses. Knowing where your money is going can make it easier to adjust if your financial circumstances change.
Build an emergency fund
An emergency fund can provide a financial cushion for unexpected expenses or changes in income. Even small, regular contributions can help you build savings over time. Consider keeping emergency savings somewhere that is accessible when you need it and separate from your everyday spending.
Review your debt
Take a look at the interest rates you're paying on your loans, lines of credit and credit cards. If you have multiple debts, consider focusing additional payments on higher-interest balances while continuing to make the required payments on your other debts.
Understand your mortgage before renewal
If your mortgage is coming up for renewal, don't wait until the last minute to start reviewing your options. Consider how a different interest rate could affect your monthly payment and overall budget. You may also want to compare mortgage terms and products based on your financial goals and circumstances.
Consider your savings strategy
If interest rates are changing, review how your savings are positioned.
Ask yourself:
- When will I need this money?
- Do I need immediate access to it?
- How much risk am I comfortable taking?
- Am I saving for a short-term or long-term goal?
- Does my current savings strategy still make sense?
Should you choose a fixed or variable mortgage?
There isn't one answer that works for everyone.
A fixed-rate mortgage provides greater payment certainty during the mortgage term because your interest rate is locked in. A variable-rate mortgage can move up or down as the lender's prime rate changes.
The right choice depends on factors such as your budget, financial goals, comfort with changing payments and expectations about your future financial situation. Rather than trying to predict exactly where interest rates will go, consider which mortgage structure you can comfortably manage if rates move in an unexpected direction.
What should you do when interest rates change?
You don't necessarily need to make a major financial decision every time the Bank of Canada announces a rate change. Instead, use rate announcements as an opportunity to review your financial plan.
Consider:
- Your debt: Are you comfortable with your current payments and interest costs?
- Your mortgage: When is your renewal date, and how could different rates affect your budget?
- Your savings: Are you earning a competitive return for the type of account or investment you're using?
- Your emergency fund: Do you have enough accessible savings to handle an unexpected expense?
- Your investments: Does your portfolio still match your goals and risk tolerance?
- Your budget: Are rising or falling costs changing your monthly cash flow?
Small adjustments made before a financial change becomes a problem can make it easier to manage your money over the long term.
Where can I find the current Bank of Canada interest rate?
The Bank of Canada publishes its current target for the overnight rate and a history of previous rate decisions. As of August 2026, the target for the overnight rate is 2.25%. The Bank's most recent scheduled decision, on July 15, 2026, maintained the rate at 2.25%.
Because interest rates can change, always check the Bank of Canada's current information rather than relying on an older article or historical rate.
View the Bank of Canada's current policy interest rate
How YNCU can help
Interest rates can affect different people in different ways. Whether you're considering a mortgage, reviewing your debt, building savings or planning for the future, understanding how rate changes affect your personal finances can help you make more informed decisions.
YNCU offers mortgage, borrowing, savings and investment solutions designed around different financial needs. Our team can help you review your options and understand how changing interest rates may affect your financial plan.
Frequently asked questions about Bank of Canada interest rates
What is the Bank of Canada interest rate?
The Bank of Canada's policy interest rate is the target for the overnight rate. It is the Bank's primary monetary policy tool and influences other interest rates throughout the economy, including some borrowing and savings rates.
Why does the Bank of Canada raise interest rates?
The Bank of Canada may raise interest rates to help slow demand in the economy and bring inflation back toward its target. Higher rates generally make borrowing more expensive and can encourage saving.
What happens when the Bank of Canada lowers interest rates?
Lower policy rates can reduce borrowing costs for some types of debt and may encourage spending and investment. They can also affect the rates offered on savings products and other investments.
How do Bank of Canada rate hikes affect mortgages?
The impact depends on your mortgage type. Variable-rate mortgages are generally more directly affected by changes in a lender's prime rate, while fixed-rate mortgages generally remain unchanged during the existing term. Fixed-rate borrowers may still be affected when their mortgage comes up for renewal.
Do Bank of Canada rate changes affect fixed mortgages?
Not usually during an existing fixed-rate mortgage term. However, the rate available when you renew your mortgage may be different from your current rate.
Do Bank of Canada rate changes affect variable mortgages?
They can. Variable-rate mortgages are generally linked to a lender's prime rate, which can change when the Bank of Canada changes its policy rate.
Do higher interest rates help savers?
They can. Higher interest rates may lead to higher rates on some savings accounts, GICs and other interest-bearing products. However, the rate you receive depends on the product and financial institution.
Should I lock in my mortgage because interest rates are changing?
There is no universal answer. Consider your budget, mortgage term, financial goals and comfort with changing payments. Rather than trying to predict future interest rates, consider which option fits your financial circumstances.
What should I do if interest rates are affecting my budget?
Start by reviewing your budget, debt payments, mortgage and savings. If borrowing costs are putting pressure on your cash flow, consider speaking with your financial institution about your options before the situation becomes difficult to manage.
Where can I find current Canadian interest rates?
The Bank of Canada publishes its current policy interest rate and historical rate decisions on its website. Financial institutions publish their own current mortgage, lending and savings rates separately.
A changing rate environment is an opportunity to review your financial plan
Interest rate changes are part of the economic environment, but you don't have to react to every announcement. Instead, focus on the parts of your finances you can control: your budget, debt, savings, emergency fund, mortgage strategy and long-term financial goals.Understanding how interest rates work can help you make decisions based on your own financial circumstances rather than reacting to headlines.
