When inflation hits 8%, everyone who had their savings in the bank starts to lose their money. Blame it on interest rates on savings accounts, which remain around 1% and are not keeping up.

“You will lose money. The value of their savings goes down,” says Claire Célérier, associate professor of finance at the University of Toronto.

The situation was different the last time inflation was this high. When inflation hit 12% in 1981, Statistics Canada data showed that the interest rate on savings accounts was then 19%. Even in 1990, when inflation was below 5%, the interest rate on bank accounts was still above 9%.

One of the main reasons for this gap is the concentration of the banking sector in Canada, believes Prof. Célérier.

“When competition between banks is weak, it takes longer for them to adjust interest rates on savings accounts. »

There is no incentive for banks to change their interest rate policy, she adds.

“If banks don’t raise interest rates on savings accounts, they make more profit. It’s a very easy way to make profits. »

In the early 1980s, the advent of mutual funds offered an alternative to banks for the average saver.

A growing number of online banks and credit unions are offering competitive rates. After the Bank of Canada announced a one percentage point hike in its policy rate in July, Oaken Financial raised its policy rate to 2.25% from 1.65%. For its part, Duca, a credit union, increased its rate from 3.1% to 3.25%, said Natasha Macmillan, a director at Ratehub.ca.

Canadians don’t change banks very often. According to a 2020 Accenture survey, less than 4% of customers had switched their savings account to a competitor bank in the previous year.

Some banks have begun raising interest rates, often as a short-term move. The offer is often subject to restrictions and is not open to everyone.

Scotiabank is offering a temporary interest rate of 4.05% on the Momentum savings account. CIBC offers a rate of 3.55% but drops to 0.8% after 120 days.

TD Bank is content to offer a rate of 0.05% for a $5,000 account and 1% for another $10,000 account. The Royal Bank offers only 0.8% and the Bank of Montreal only 1%.

According to M^me Macmillan, if more savers decided to switch their accounts to alternative companies, the pressure on the shoulders of the big players would increase.

“As more Canadians become more comfortable shopping or transferring their accounts, five or six big banks will feel the competitive pressure and raise their own interest rates. »

But banks aren’t scouting for new customers as Canadians have reaped significant savings during the pandemic.

“Banks do not lack money and liquidity. The level of deposits remains high, said Carl De Souza, senior vice president of rating agency DBRS Morningstar. There is less pressure to raise savings rates unless deposits suddenly decline or a competitor raises its own rates. »

Mr De Souza notes that savings co-ops offer higher interest rates because they were created to serve their members and not allow shareholders to make a profit. However, consumers are still reluctant to make a choice.

“Some may not want to put money in credit unions, despite the higher interest rates, because they believe they pose a greater risk than the big banks. »