Investing

BOC Sept 6 Rate Announcement...

  • Last Updated:
  • Sep 12th, 2017 10:36 am
Tags:
44 replies
Newbie
Dec 26, 2007
88 posts
34 upvotes
Hope EQ, Tangerine & Meridian increase their Savings/GIC rates accordingly - wishful thinking may be?
Deal Expert
User avatar
Sep 19, 2004
26761 posts
9330 upvotes
where I belong
+0.25% in July
+0.25% in Sept

CAD is 2-year high and higher
Good economy, but you don't see gains in Energy or RE or etc... definitely not TSX market
Which Credit Cards to sign up? >> Jerry's Mega Thread of Credit Cards Q&A
Deal Fanatic
Jun 27, 2007
5507 posts
1956 upvotes
so the question of the day, as BOC keeps raising rates, at which point doing Smith Maneuver becomes too expensive to implement?

as of now, HELOC @ 3.7% and dividends from big 6 banks around 4%
Last edited by dlhunter on Sep 6th, 2017 10:13 am, edited 1 time in total.
It's easy to grin when your ship comes in and you've got the stock market beat.
But the man worthwhile is the man who can smile when his shorts are too tight in the seat 😃
In Fed We Trust - Make ES Limit Down Great Again!
Deal Addict
User avatar
May 25, 2008
1615 posts
945 upvotes
Toronto
Well, its affecting the bond market: Canada 3 month +10%, Canada 5 Year +4.7%, 10 year +3.4%.
Deal Fanatic
Oct 7, 2007
9404 posts
5374 upvotes
It's good to see rates heading towards normality although we have a long ways to go and hopefully we don't reverse course in the process.
Deal Fanatic
Nov 24, 2013
6479 posts
3344 upvotes
Kingston, ON
dlhunter wrote: so the question of the day, as BOC keeps raising rates, at which point doing Smith Maneuver becomes too expensive to implement?

as of now, HELOC @ 3.7% and dividends from big 6 banks around 4%
With SM, the interest is tax-deductible, so depending on your bracket the net cost of borrowing has gone from ~2.43% to ~2.60% (that's the broad middle bracket in ON, even lower for higher incomes). Bank dividends also grow, so ~4% yield is only for new purchases. Shares bought with last year's capital are probably yielding 5%+ already.
Deal Addict
Feb 24, 2008
2331 posts
826 upvotes
Banks will not waste time to pass on the rate hike to their variable mortgage customers. However, don't expect a corresponding increase in savings account rates.
Deal Addict
User avatar
Feb 25, 2014
2170 posts
341 upvotes
Mississauga
Dpack22 wrote: Wrong question. Will savings accounts move up by the same amount as the rate increase?

Protip; they won't.
But will the prime rate mive up?
Protip: sure, why not?
Oh sada kehra bapu karda black nee, Jehra tere shahir (Toronto), Le lawan flat nee
Deal Fanatic
Oct 7, 2007
9404 posts
5374 upvotes
Dpack22 wrote: Wrong question. Will savings accounts move up by the same amount as the rate increase?

Protip; they won't.
Past behaviour is a good predictor of future behaviour. Last time BoC raised their rate, how many banks increased their savings rates and by how much? Enough said.
Deal Guru
User avatar
Mar 12, 2005
11677 posts
3487 upvotes
Victoria
Fair enough. The two BoC decreases of .25% were matched by the banks at only .15%. The last increase followed the BoC increase of .25% completely. I'm betting this one will too... meaning variable customers will end up paying .2% than they were expecting. By dropping the rate so low the BoC gave the banks room to permanently raise their prime rate.

I expect savings rates to not keep pace. I think they only went up about .1 or .15 the last time the BoC raised .25. They'll passed on the full rate for borrowing, but not for saving.
Deal Fanatic
User avatar
May 11, 2014
6582 posts
9090 upvotes
Rankin Inlet, NU
I really would not be surprised if banks increase prime by 0.30% just to make the number look nicer and to tack on another 0.05%. 3.25% instead of 3.20%
Support your local Credit Union!

RRSP where you can deposit with a Credit Card, earn rewards investing!
RFD Saskatchewan Pension Plan
Deal Fanatic
Nov 24, 2013
6479 posts
3344 upvotes
Kingston, ON
xgbsSS wrote: I really would not be surprised if banks increase prime by 0.30% just to make the number look nicer and to tack on another 0.05%. 3.25% instead of 3.20%
I was surprised they didn't do it last time around. This time, I'm not sure what to expect...
Deal Fanatic
User avatar
May 11, 2014
6582 posts
9090 upvotes
Rankin Inlet, NU
Mike15 wrote: I was surprised they didn't do it last time around. This time, I'm not sure what to expect...
Yes, although 2.95% sounds like some store pricing, so maybe that's why they left it as is :P
Support your local Credit Union!

RRSP where you can deposit with a Credit Card, earn rewards investing!
RFD Saskatchewan Pension Plan
Deal Addict
Jul 27, 2017
2180 posts
950 upvotes
Mike15 wrote: With SM, the interest is tax-deductible, so depending on your bracket the net cost of borrowing has gone from ~2.43% to ~2.60% (that's the broad middle bracket in ON, even lower for higher incomes). Bank dividends also grow, so ~4% yield is only for new purchases. Shares bought with last year's capital are probably yielding 5%+ already.
@Mike15, I cannot get my head around how the numbers flush out net?

Ignoring any capital appreciation, is it that for the average middle of the road income tax bracket investor doing the SM the net after cost return ROI using OPM is approx 2% or less?

If it is 2% net in pocket, then on $100k of Heloc $2k/yr return investing in something that has volatility doesn't seem a good idea or maybe it is?
Last edited by Guest37273939 on Sep 6th, 2017 2:19 pm, edited 1 time in total.

Top

Thread Information

There is currently 1 user viewing this thread. (0 members and 1 guest)