As the name suggests, Canada’s ‘Prime Rate’ is the lowest available lending rate all major financial institutions charge their most trustworthy customers for various loan products, including mortgages, personal loans, and lines of credit.
But what is the current prime rate in Canada?
As of May 2023, the prime rate is set at 6.70%; however, it’s subject to change as it’s closely connected to the country’s ‘Overnight Rate’—the policy interest rate set by the Bank of Canada for banks lending and borrowing from each other.
Learn more about the prime rate and how it affects everyday consumers and their loan applications in the sections below!
What Does ‘Prime Rate’ Mean?
Essentially, the prime rate is the lowest interest rate Canada’s banks and other lending institutions offer to their most loyal applicants, and as such, it serves as a baseline to determine the interest rates they charge for all their credit products.
Due to the fast rise of inflation throughout 2021 and 2022 (the result of the pandemic and the war), the prime rate hiked from 2.45% on March 2nd, 2022, up to 6.70% on January 25th, 2023—where it’s holding steady as of May 2023.
How Is the ‘Prime Rate’ Set?
While banks are free to determine their own prime rates, Canada’s big banks have an informal agreement to use the same one, and they set it a day after the country’s central bank—the Bank of Canada—changes the overnight rate.
That said, the prime rate has been fluctuating at the same pace as the BoC policy interest rate since 2015—floating at 2.20% above it. Since the overnight rate has been maintained at 4.50% since February 2023, the prime rate has been 6.70%.
The reason for this close connection between the two rates is the increased expenses banks have to pay when the BoC raises the overnight rate. In effect, they are offsetting their increased costs by having their customers pay more.
How Does It Affect Average Canadians?
Most Canadians are immediately affected by overnight and prime rate changes as their floating interest rates go up or down with them. After all, financial institutions base and adjust their internal loan structure on their prime rates. For instance, variable-rate loans are typically presented in the following format: prime rate +/- 1, 2, 3%, etc.
The impact higher and lower prime rates have on the everyday consumer includes:
|An increase of the prime rate||A decrease of the prime rate|
Note: In times of tumultuous economic changes, consumers should consider taking out a loan with fixed interest rates, as they will not increase along with the prime rate.
How Does It Affect the Various Loan Rates?
As mentioned above, a changing prime rate affects the loan rates of different credit products similarly, ultimately impacting every type of borrower in the country:
1. Variable Rate Mortgages
As a general rule of thumb, every lender offering variable rate mortgage products bases and adjusts their mortgage rates with the current prime rate—when the prime rate increases or decreases, the mortgage interest increases or decreases as well.
That said, the actual interest payments will vary depending on factors such as the lender’s policy and the applicant’s situation: mortgage and property size.
Some creditors even offer rates slightly lower than the prime rate, especially if they expect the Bank of Canada to increase the overnight rate soon.
However, borrowers still prefer getting variable-rate mortgages in such cases, especially if they are expecting to repay their loan reasonably quickly.
In any case, most consumers can change from a variable-rate to a fixed-rate mortgage—a safe decision if the prime rate is on the rise.
2. Credit Cards
Since credit cards are not backed by valuable assets, they constitute unsecured loans that come with higher interest rates to offset the added risk.
So when you are comparing different credit cards, you will most likely see them described as “Prime rate + 4.50% to 12.50%” or “Prime rate + 10% only”.
Due to their variable APR, especially when changed by the bank instead of the prime rate, credit card holders must be ready for erratic fluctuations in interest payments, especially if the market is going through or recovering from inflation.
3. Car Loans
Compared to credit cards, car financing is a secured type of loan that comes with somewhat lower interest rates but still falls above mortgage products.
Most of them are also based on the prime rate, so your payments will change when the BoC implements a new overnight rate. On the other hand, if you are looking into fixed-rate auto loans, get one as soon as you notice lower rates as they also change.
To stand out from the rest, some car dealers may even offer extremely low or even zero-interest car loans—you shouldn’t pass up on those deals.
4. Home Equity Lines of Credit (HELOC)
This type of product always uses variable-rate interest rates based on the country’s prime rate, so you’ll immediately notice any changes in the prime rate.
That said, a HELOC’s delta (deviation from the prime rate) is on the lower end. So you’ll most often see HELOCs offered at “Prime + 0.50% to 1%”.
However, be careful when applying for a line of credit secured by your home since if you fall on hard times, your property will be at risk of seizure. Therefore, consult a financial professional to see if you can access other loan alternatives instead.
5. Personal Loans
This generic type of credit is available in different forms and sizes. For instance, you can access anywhere from $100 to $50,000, secure the loan with collateral to get better terms, and choose a repayment period between 6 to 60 months.
Since this product type is used for all sorts of purposes, lenders offer greater customizability compared to other loans. For instance, in addition to the loan size, customers can choose whether to get a fixed- or a variable-rate loan.
Additionally, their payment amounts will be determined by the term they choose, the size of the additional fees, and whether they’ve added optional services. Naturally, those with variable-rate loans may end up paying different amounts down the line.
6. Business Loans
Like personal loans, business financing in Canada comes with fixed and variable rates. However, if you are an entrepreneur in need of a loan, you’ll get access to many different amenities unavailable to individual borrowers.
For example, business loans come with longer repayment periods, more capital, and lower interest rates, so even if the prime rate shifts, owners will be affected less than everyday consumers. The interest is also tax deductible in most cases!
Canada Prime Rate Trends
While the prime rate varies over time, there are periods of constant and unpredictable fluctuations due to outside factors affecting the country’s economy.
We are living in one such period instigated by several factors, the most prominent of which are the Covid-19 pandemic and the unjust Russian invasion of Ukraine.
Let’s look at the recent changes in Canada’s prime rate history:
|Date of Change||Prime Rate||Change Amount|
|April 12, 2023||6.70||—|
|March 8, 2023||6.70||—|
|January 25, 2023||6.70||+0.25|
|December 7, 2022||6.45||+0.50|
|October 26, 2022||5.95||+0.50|
|September 7, 2022||5.45||+0.75|
|July 13, 2022||4.70||+1.00|
|June 1, 2022||3.70||+0.50|
|April 13, 2022||3.20||+0.50|
|March 2, 2022||2.70||+0.25|
|January 26, 2022||2.45||—|
|December 8, 2021||2.45||—|
As you can see, starting with March 2nd, 2022, the prime rate has been on a steady climb from 2.45% all the way to 6.70%—a milestone it reached on January 25th, 2023.
Also, the 2.45% that lasted for two consecutive years since March 2020 was the lowest the prime rate had been recorded since early 2010 when it was set at 2.25%.
For the remainder of 2023, the prime rate (and the overnight rate) is expected to remain stable at 6.70%, with a possible 0.25% decrease in October 2023.
Is the Prime Rate the Same Across Canada?
Despite each Canadian bank being responsible for setting its own prime rate, all major banks and other smaller lenders choose to use the same prime rate.
For instance, every major bank in the country, from the Royal Bank of Canada to Scotiabank, TD Bank, CIBC, BMO, HSBC, and the National Bank of Canada, raised the prime rate from 6.45% to 6.7% on January 25th, 2023.
The prime rate is the baseline lenders use when determining the interest rates of all of their products, and as such, only the most trustworthy customers can access it. All others typically get an offer that is a few percentage points above the prime rate.
Banks change their prime rates as soon as the country’s central bank—the Bank of Canada—adjusts the overnight rate, which is 2.2% below the prime rate.
Ultimately, the prime rate is an indicator of the economy’s health and affects all loan products. Therefore, borrowers with variable-rate loans must always keep an eye on the prime rate to adjust their finances correspondingly if and when necessary.