Weekend Reading: Emergency Rate Cut Edition

The Bank of Canada cut its key interest rate by 0.50 percent on Wednesday in a response to a global economic threat caused by the COVID-19 outbreak. The decision followed the U.S. Federal Reserve’s emergency rate cut on Tuesday. It’s the first interest rate cut in four years. Here’s what it means for Canadians:

Interest rates on variable rate mortgages and lines of credit tied to the prime lending rate should also fall by 0.50 percent. I can confirm that the interest rate on my five-year variable rate mortgage fell from 2.95 percent to 2.45 percent, while the interest rate on my prime + 0.60 percent home equity line of credit fell from 4.55 percent to 4.05 percent.

That’s a mild surprise from the big banks, given that they did not pass on the full rate cut on previous occasions when the Bank of Canada lowered its key lending rate.

Related: What the Bank of Canada rate cut means for mortgages

Now for the bad news. Interest rate cuts hurt savers. Immediately following the Bank of Canada announcement, Wealthsimple said it would be lowering the interest rate on its new Wealthsimple Cash account from 2.4 percent to 1.9 percent.

As of this writing, LBC Digital still offers a 2.8 percent interest rate, EQ Bank still offers a 2.45 percent interest rate, and Motive Financial still offers a 2.4 percent interest rate on savings deposits.

Of bigger concern to the overall economy is Canada’s 10-year bond yields, which are in a free-fall. Canada’s five-year government bonds are also near record lows. Lower yields in the bond market can be a strong indicator of economic trouble ahead.

Canada 10-year bond yields

As for the stock market, the TSX had an up-and-down week but ended up slightly lower than where it started the week. The S&P 500 also had a roller-coaster of a week, but ended the five-day period flat.

I added $1,000 to VEQT inside my TFSA (regular monthly contributions) and that portfolio finished the week up by 0.19 percent. On the year it is down about 9.3 percent.

I haven’t made any changes to my RRSP (also invested in VEQT), and this all-equity portfolio is down 9.38 percent on the year.

As I’ve said before, this is well within the range of potential short-term outcomes. Nothing to get excited about. Stick to your plan, and this too shall pass.

This Week’s Recap:

A busy week of financial planning meant no new posts from me on Boomer & Echo last week. I did manage to recap our February vacation on Rewards Cards Canada and looked at how much it costs to go to Maui.

From the archives: Here’s a sensible RRSP vs TFSA comparison.

For Globe and Mail subscribers: Travel expert Barry Choi interviewed me for his latest piece on travelling to Italy.

I’m excited to announce a new partnership with Scotiabank where I will be using the Scotia Momentum Visa Infinite Card over the course of the year to earn cash back on my spending. This includes an incredible 10 percent cash back for the first three months:

Promo of the Week:

Travel might be the furthest thing from your mind these days with the coronavirus spreading around the world. Still, it might be a great time to catch some deals on trips for the summer or fall. 

We’re big fans of Airbnb when we travel with our family. We like having an entire place to ourselves, along with a kitchen to prepare our own meals.

When you sign up for Airbnb with a referral link, you’ll get up to $62 off your first trip. How it works is you’ll get $45 off your home booking, and then another $17 to use towards an Airbnb experience worth $63 or more. An “experience” is an activity hosted be a local expert.

Weekend Reading:

Our friends at Credit Card Genius share the latest TD credit card offers to earn Aeroplan miles, flexible travel points, and cash back.

Topical today – Money We Have blogger Barry Choi explains how trip cancellation insurance actually works.

Hannah Logan shares the best budget-friendly winter getaways for Canadians.

Here’s a truly ridiculous news segment that claims failed Democratic candidate Michael Bloomberg could have given every American $1M instead of spending $500M on his political campaign. Math is hard.

PWL Capital’s Ben Felix digs into the incredible story of Renaissance Technologies’ Medallion Fund, which has returned 66 percent per year for 30 years:

Morgan Housel says he doesn’t know anything about coronaviruses, but he does share some excellent thoughts about how people view risk.

Rob Carrick shares eight dos and don’ts to protect your finances in these uncertain times.

Fiscally fit at 40? Author Bryan Borzykowski shares what he’s learned about life and investing in the past decade.

Jason Pereira and Alexandra Macqueen explain a unique tax planning opportunity involving the use of a dead spouse’s unused TFSA room. Interesting.

Alexandra Macqueen again, this time on Morningstar, explaining why a life annuity could help close the retirement income gap.

Here’s an absolutely epic post on the Million Dollar Journey blog about withdrawing from your RRSP, TFSA, and non-registered accounts. Must read.

Jason Heath explains how to ensure your inheritance goes to your children and not the taxman.

Anxious about the markets? Robin Powell explains why worrying about the coronavirus is a waste of time and energy:

“You have no control over the coronavirus or the markets. Unless you’re a professor of epidemiology, don’t kid yourself that you have any unique insight into how the virus might develop. Moreover, from here, markets could go sharply up or down for reasons totally unrelated to COVID-19.”

Nick Maggiulli offers three compelling reasons why you should own bonds in your portfolio.

Another terrific story by Andrew Hallam, who wonders if these are the toughest conversations John Bogle’s son has?

Finally, the great Morgan Housel again on death, taxes, and three other inevitable things.

Have a great weekend, everyone!

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1 Comment

  1. Sue on March 12, 2020 at 9:55 am

    Not surprised with the interest rate decline. Interesting though I heard the Alberta Government is increasing their student rate loan as of april 1, 2020 to prime plus 1% from prime? Any comment on this!

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