When the Bank of Canada changes its policy interest rate, the effects can reach many parts of the economy — including the interest you pay on borrowing and the interest you can earn on savings. Understanding how interest rates work can help you make more informed decisions about your mortgage, debt, savings and overall financial plan.
The Bank of Canada uses its policy interest rate as its main tool for influencing inflation and economic activity. The Bank generally raises its policy rate when it wants to slow demand and bring inflation down. Higher interest rates make borrowing more expensive and can encourage households and businesses to spend less and save more.
When the economy needs additional support, the Bank can lower its policy rate. Lower borrowing costs can encourage spending and investment. The Bank's inflation-control target is 2%, the midpoint of a 1% to 3% range. Changes to the policy rate can take time to work through the economy. As of August 2026, the Bank of Canada's target for the overnight rate is 2.25%. Because the policy rate can change, it's best to check the Bank of Canada's current rate before making financial decisions.
When the Bank of Canada raises its policy rate, other interest rates in the economy can also increase.
This can affect products such as:
Higher borrowing costs can mean more interest paid over time or higher payments, depending on the type of loan and how its payments are structured. If you have debt, a change in interest rates can be a good reason to review your borrowing costs and overall repayment strategy.
A fixed-rate mortgage generally isn't affected immediately when the Bank of Canada changes its policy rate. Instead, the interest rate remains fixed for the term of the mortgage. The rate becomes relevant again when the mortgage is renewed or refinanced, subject to the terms of the mortgage agreement. This means homeowners with fixed-rate mortgages may have time to prepare for a potential change in their payments at renewal. If your mortgage is approaching renewal, consider reviewing your options early and understanding how different rates and terms could affect your budget.
Variable-rate mortgages are generally more sensitive to changes in interest rates. Depending on the mortgage structure, an increase in the lender's variable rate can increase the amount of interest you pay. Some mortgages adjust the payment amount, while others may initially keep payments relatively stable and change how much of each payment goes toward principal versus interest. If you have a variable-rate mortgage, understand how your particular mortgage responds to changes in your rate.
Higher interest rates can also benefit savers. When rates rise, financial institutions may offer higher rates on products such as savings accounts and guaranteed investment certificates (GICs). This can increase the return available on money you're keeping in interest-bearing accounts. However, rates and product terms vary. Compare the interest rate, term, access to your money and any other conditions before choosing a savings or investment product.
Interest rate changes can affect different investments in different ways. For example, changes in interest rates can influence bond prices, borrowing costs, business activity and investor expectations. The effect on a particular investment depends on the type of investment and other economic factors. Market movements are difficult to predict, so a change in interest rates isn't necessarily a reason to make a sudden change to a long-term investment strategy. If you're concerned about how changing rates could affect your portfolio, consider reviewing your goals, time horizon and risk tolerance with a qualified financial professional.
You don't need to predict the Bank of Canada's next decision to prepare your finances.
Higher borrowing costs and changes in everyday expenses can affect your monthly cash flow. Review your budget regularly and identify expenses that could be adjusted if your financial circumstances change.
Look at the interest rates you're paying on credit cards, lines of credit, loans and other debt. If you have multiple debts, consider whether paying down higher-interest debt should be a priority.
If your mortgage is coming up for renewal, don't wait until the last minute to understand your options. Consider how a different interest rate could affect your payments and whether your current mortgage structure still fits your needs.
An emergency fund can provide a financial buffer when unexpected expenses arise or your income changes. If you're working toward an emergency fund, consider setting aside money regularly in an accessible savings account.
When interest rates change, it can be worth reviewing where you're keeping your savings and whether the account or investment still meets your needs.
Interest rates are one factor in your financial picture. Avoid making major financial decisions based solely on a single rate announcement or short-term market movement. Instead, consider how any change fits into your broader financial goals.
The impact of an interest rate change depends on your financial circumstances. A borrower with a variable-rate mortgage may be affected differently from someone with a fixed-rate mortgage. A person carrying high-interest debt may have different priorities from someone with substantial savings. That's why there isn't one financial strategy that works for everyone. The best approach is to understand how changes in interest rates affect your borrowing, savings, cash flow and long-term goals.
The Bank of Canada announces its policy interest rate on scheduled dates throughout the year. Its decisions can change as economic conditions and inflation evolve. You can check the current policy rate and learn more about monetary policy directly from the Bank of Canada. If you're unsure how changing interest rates could affect your finances, consider speaking with a financial professional about your individual circumstances and goals.
This article is for general educational purposes only and does not constitute personalized financial, investment, mortgage, tax or legal advice. Interest rates, financial products and eligibility requirements are subject to change.