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Updated 2mo ago.
Updated 2mo ago.
The policy interest rate is the interest rate set by the Bank of Canada (or the Fed in the U.S.) that influences all other interest rates in the economy. It determines the cost of borrowing between banks and trickles down to mortgage rates, savings accounts, and bonds.
When the Bank of Canada lowers its policy rate, bond ETFs like ZAG.TO tend to gain value (existing bonds with higher rates become more attractive). Conversely, high-interest savings accounts (like those listed on our best rates page) offer lower yields. Money market ETFs like CASH.TO adjust their distributions quickly.
The policy interest rate is the most powerful lever in the economy. It directly affects your savings returns, your mortgage cost, and the value of your bond ETFs. Understanding its impact helps you avoid panicking when your investments react to Bank of Canada announcements.