What is the Prime Rate in Canada in 2021?

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by Enoch Omololu

Updated

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The prime rate has remained at 2.45% since it was cut three times in a row in early 2020 when the pandemic first hit Canada.

The prime interest rate fell from its previous level of 3.95% as the bank of Canada accelerated cuts to its overnight rate in order to boost the economy and minimize the financial impact of the pandemic.

The only other time in recent history that the prime rate has fallen below 2.50% was in April 2009 during the thick of the financial crises.

What is the prime rate in Canada and how does it impact your wallet? Read on to find out.

What is the Prime Rate?

The prime rate is the interest rate that banks and other financial institutions use as a starting point for their variable interest rate products.

Examples of financial products that rely on the prime interest rate include:

How is the Prime Rate Determined?

Banks revise their prime rate based on the Bank of Canada’s policy interest rate aka “target for the overnight rate,” or “key interest rate.”

The overnight rate is what it costs banks to lend money to each other overnight. This rate is set by the Bank of Canada at a level that matches the prevailing monetary policy, level of inflation, and economic performance.

The current target for the overnight rate is 0.25%, falling from a high of 1.75% at the beginning of 2020. Generally, when the overnight rate falls, banks lower their prime rate by the same amount and vice versa.

For example, when the overnight rate was 1.75%, the prime rate was 3.95%. When the overnight rate dropped 150 basis points (bps) to 0.25%, the prime rate fell to 2.45% (-1.50%).

Analysts wait on the Bank of Canada’s announcements all through the year (eight fixed days) to learn about changes to the key interest rate.

For 2021, the interest rate announcements are set for January 20, March 10, April 21, June 9, July 14, September 8, October 27, and December 8.

Current Prime Rate for Canada’s Banks

The current prime rate for banks in Canada are:

BankPrime Rate
TD prime rate*2.45%
RBC prime rate2.45%
Scotiabank prime rate2.45%
CIBC prime rate2.45%
BMO prime rate2.45%
National Bank prime rate2.45%
HSBC prime rate2.45%
Tangerine prime rate2.45%

*TD’s mortgage prime rate is 2.60%.

Attention is usually directed at how the Big 6 (RBC, BMO, Scotiabank, CIBC, TD, and National Bank) react to a change in the overnight rate and the impact on their published prime rate.

While the banks typically follow in lockstep to adjust their prime rates by an equal amount, this is not always the case.

Impacts of the Prime Rate on Your Finances

The prime rate affects variable rates and your cost of borrowing. Financial products that are immediately impacted include variable-risk mortgages, personal loans, lines of credit, HELOCs, and credit cards with variable APRs.

For example, your bank may advertise a 5-year variable mortgage loan (closed) as Prime – 0.40%. At the current prime rate level of 2.45%, this means your mortgage rate is 2.05% (i.e. 2.45 – 0.40%).

If the overnight rate rises by 50bps to 0.75% and the prime rate becomes 2.95%, your effective variable mortgage rate rises to 2.45% (i.e. 2.95% – 0.40%).

For comparison sake and for the same mortgage length, the bank’s variable “open” mortgage rate may be listed as Prime + 1.00% which is equivalent to an effective mortgage rate of 3.45%.

Compared to fixed interest rate products that stay the same throughout the term, variable rate loan products will rise and fall in tandem with the prime rate.

Banks may also vary the rates they pay on savings accounts when the overnight rate changes. During the recent emergency rate cuts, the savings accounts rates offered by many of the big banks effectively fell to 0%.

This is in line with the monetary policy objective of the Bank of Canada in which a lower interest rate on loans, mortgages, savings, etc., directly and indirectly, stimulates economic activity when inflation rates fall below target.

Lastly, a change in the overnight rate can affect the exchange rate of the Canadian dollar.

Related: Best mortgage rates in Canada.

Prime Rate History in Canada

Below is a chart showing the history of prime rates in Canada over the last 10 years (hover or click to see rates).

If you are interested, I have also included a table showing how the prime lending rate for Canada’s chartered banks fared during the same time period.

DateBank Prime Lending Rate Canada
March 20202.45%
March 20202.95%
March 20203.45%
October 20183.95%
July 20183.70%
January 20183.45%
September 20173.20%
July 20172.95%
July 20152.70%
January 20152.85%
September 20103%
July 20102.75%
June 20102.50%

Related Posts:

Canada Prime Rate FAQs

What is Canada’s Prime Rate?

The current prime rate in Canada is 2.45%

Will mortgage rates drop in Canada in 2021?

Variable-rate mortgages respond to changes in the prime rate. When the prime rate falls, variable mortgage rates drop and they rise when the prime rate goes up. It’s anyone’s guess where long-term rates are headed. The general prediction is that mortgage rates will remain low through 2021-2023 as the Canadian economy attempts to recover to pre-COVID19 levels.

What is the Bank of Canada’s Prime Rate?

The prime rate is actually set by banks/lenders and not the Bank of Canada (BOC). Financial institutions base their prime lending rate on the overnight rate set by the BOC. The BOC’s target for the overnight rate is currently set at 0.25%.

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 and that impacts the prime rate. The remaining dates for 2021 are September 8, October 27, and December 8.

Have questions about the prime rate? Leave them in the comments.

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Author

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Enoch Omololu

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch has a passion for helping others win with their personal finances and has been writing about money matters for over a decade. His writing has been featured or quoted in The Globe and Mail, Winnipeg Free Press, Wealthsimple, Financial Post, Toronto Star, Credit Canada, MSN Money, National Post, CIBC, and many other personal finance publications.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

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