How the Bank of Canada's rate reaches your mortgage, loans and savings

What the Bank actually sets

The Bank of Canada's policy interest rate is its target for the overnight rate: the rate at which major financial institutions lend to one another for a single day. The Bank doesn't set your mortgage rate, your HELOC rate or your savings rate. It sets the anchor that the rest of the system prices from.

So a quarter-point change in the policy rate doesn't arrive in your accounts as a quarter-point change everywhere. It travels through different routes, at different speeds. The benchmarks page shows the current policy rate and the date of the latest figure.

First stop: prime

Each financial institution sets its own prime rate as a function of its funding cost, which is influenced by the policy rate. The Bank of Canada publishes a typical prime rate for the chartered banks each week.

When the policy rate moves after the latest published prime figure, the checker estimates prime by adding the same move and labels the result as an estimate. Your own lender's posted prime is the figure that applies to you. More in the prime rate, explained.

HELOCs and lines of credit

HELOC rates are variable and commonly quoted relative to prime, so a change in prime reaches the balance quickly. On an illustrative $60,000 HELOC balance, 5.20% instead of 4.95% costs $150 more over a year: about $260.00 a month instead of $247.50 in interest.

Unsecured lines of credit are commonly priced off prime as well. The checker benchmarks both against the Bank of Canada's effective rates on new lines of credit, moved by any policy-rate change since the published month. Try your own balance in the HELOC interest calculator.

One announcement, many arrival times. Find where your own rates sit.

Variable-rate mortgages

A variable mortgage rate is generally prime plus or minus a spread, so it moves with prime. On an illustrative $500,000 mortgage with a recalculated payment, 4.55% instead of 4.30% raises the payment by $70.66 a month and adds $1,245 of interest over a year.

Whether you feel that in your payment straight away depends on the design of your mortgage. Some variable mortgages change the payment; others keep it fixed and change how much goes to principal. See how variable-rate payments work.

Fixed rates listen to the bond market

Fixed mortgage rates tend to follow Government of Canada bond yields of a similar term rather than the policy rate directly. Yields respond to expectations about future policy, so fixed rates can move before, after or independently of an announcement. When the matching yield has moved since the latest published lending figure, the checker moves its fixed-mortgage benchmark by the same amount and labels it as an estimate. See how bond yields move fixed mortgage rates.

Several things don't move with an announcement at all:

• A fixed-rate mortgage during its term. The rate changes only at renewal.
• Fixed-rate car and personal loans. The rate is set in the loan agreement.
• Credit cards. The rate is set in your cardholder agreement; check whether yours is linked to anything. The checker benchmarks cards against the effective rate on outstanding card balances, not the policy rate.

Savers: savings accounts and GICs

Savings accounts pay a floating rate, so the checker uses the policy rate itself as the yardstick for the savings checker. On an illustrative $25,000 balance, 2.75% instead of 2.50% earns $64 more over a year. Your account's terms decide whether and when its rate changes.

A GIC locks your rate for the term, so the GIC checker compares it with the Government of Canada yield for the same term instead: the one-year treasury bill, or the two-, three- or five-year bond. If you hold money in both, the GIC vs savings calculator compares them side by side.