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Saving During Uncertainty

When savers look at interest rates in the midst of the recent COVID-19 outbreak, it’s difficult not to feel pessimistic.

Markets are volatile and interest rates are being lowered following the Bank of Canada dropping its Key Overnight Rate to historical lows, which then sets the stage for what Canadian financial institutions ultimately set as their interest rates. Plus, the COVID-19 situation is evolving rapidly throughout the world which adds yet another level of uncertainty.

So what should savers and investors be doing in this unprecedented time?

1.Time is still one of your best allies when it comes to saving or investing.

The math is simple. Allowing the power of compound interest to maximize your returns over time will help build your wealth. This applies to any stage of life– even at today’s interest rates.

2.Maximizing your return is far more important than the interest rate you receive.

Now, more than ever, is the time to make sure you’re making use of tax shelters. Yes, you should always ensure you’re receiving the best interest rates available for your savings, however, this is only one part of maximizing your long-term returns. Tax sheltering your savings through a combination of allowable TFSA and RRSP contributions will best preserve these returns and allow them to grow faster.

3.Hedge yourself against rising and falling interest rates.

Rather than have all your savings in a liquid deposit account, ladder your savings across a range of GIC/Term Deposits from 1-5 years. Doing so will offer you one of the best ways to earn a higher return while reducing your risk of sudden interest rate moves.   Read here about a GIC Laddering Strategy.

4.There is still no substitute for a consistent savings regime.

You need to have a consistent savings plan to combat the shortfall caused by historically low deposit rates. Whether the amount is established as a percentage of income (such as 10% of what you earn) or a consistent dollar amount (say $50 per week), reminding yourself of the “pay yourself first” philosophy will greatly assist in building your savings and wealth through the long-term.

5. Stay where you get consistently competitive rates.

A recent article in the Globe and Mail suggests that, “an easier to follow regimen is to find a bank that consistently offers competitive rates and stick with them”.  Financial institutions and online banks often entice savers and investors to move their money by offering rate promotions for a limited time, or to the select few that they have directly targeted. Savers and investors move their money from one institution to the other to capture a slightly higher rate, requiring much effort for what is sometimes a minor difference in return.

For over 20 years, Achieva has offered our customers highly competitive interest rates, securely and without hassle, allowing you to grow your savings with confidence. All deposits guaranteed without limit by the Deposit Guarantee Corporation of Manitoba.