Through its website and daily newsletters, The Peak (a ZoomerMedia property) offers Canadians the news they need to understand business, tech, and other must-know stories.
In this dispatch, The Peak looks at the Bank of Canada’s key interest rate cut, why Canadians are choosing smaller banks and how prepaid cards can help you save money.
Don’t Let the Jumbo Cut Cause Jumbo Spending
Last week, the Bank of Canada announced a jumbo cut to the key interest rate, dropping it by half a percentage point to 3.75 per cent. While this is great news for borrowers, it doesn’t mean it’s time to go on a spending spree. When interest rates drop, people can see more savings on things like loans. And that extra dough might tempt some people to overdo it on investing or spending, or even over-borrowing. While this could help stimulate the economy, caution is key.
“A rate cut shouldn’t be a reason for risky investing, or splurging on a new car or a fancy TV,” Ashish Dewan, investment strategist at Vanguard Canada told Peak Money.
Despite the jumbo-ness of it all, it’s smart to keep a good chunk of money in your savings account for emergencies. And don’t hold your breath for another big cut at the next meeting in December; analysts are leaning towards a smaller, 25-basis point cut, while Dewan thinks we won’t see any more cuts this year. —Meera Raman
People Are Pissed at the Big Banks
Canadians are happier at mid-size banks, like Tangerine and Simplii Financial, than they are at the Big Five banks, according to a new J.D. Power survey. There are some key reasons why Canadians are frustrated with the big banks: negative media coverage, how banks often shift blame to customers for mistakes, unexpected fees, and — crucially — how steep those fees can be. But even with all this frustration, big banks still have a chokehold on the Canadian banking landscape. Tangerine has around $40 billion in assets, but that’s just a tiny slice — about 4 per cent — of CIBC’s size, the fourth-largest bank in Canada. Plus, the Big Six still hold about 63 per cent of household financial wealth. But, the rise of alternative banks that have good customer satisfaction and go toe-to-toe with what the big banks offer could shake things up. As these smaller banks expand their services — like high-interest savings accounts, low fees, and mortgages — they’re giving consumers more options and potentially changing the banking game. —MR
Prepaid Cards Are the Next Best Thing
Prepaid cards can save you money in three key ways. First, they usually come with no account fees while still offering a competitive interest rate on your funds. Second, some prepaid cards let you shop outside Canada without hitting you with that pesky 2.5 per cent foreign currency fee that most credit cards charge. Finally, they help keep your spending in check: since you can only spend what you load onto the card, it’s a great way to avoid overspending. Now, one drawback is that prepaid cards traditionally haven’t helped you build credit — but that’s starting to change. Fintech Koho offers prepaid cards that are linked to a line of credit, and paying off the card every month helps you build credit. While prepaid cards accounted for only 0.2 per cent of transactions last year, they’ve seen a year-over-year growth rate of 10 per cent, outpacing both credit and debit cards. You can find these prepaid cards through providers like EQ Bank, Neo Financial, Wealthsimple, and Wise — most of which are backed by Mastercard or Visa. —MR
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