Three ways to shield yourself from rising interest rates

by Sean Lesy, Chief Investment Officer

The Bank of Canada increased interest rates twice so far in 2018 with a third increase expected in October. Higher interest rates can be good news for people with lots of cash in the bank but for many of us they mean higher monthly payments on everything from your credit card to your car loan to your mortgage.

Here are three ways to shield yourself from rising interest rates.

  1. Pay down debt

This is a no brainer, sure, but many Canadians aren’t getting the message: a May 2018 report from the Bank of Canada states that at the end of 2017, Canadian households owed just over $2 trillion! Debt is a part of life for most of us. But no matter how you got there, higher interest means bigger payments. And for high rate products like credit cards, this means less money going to the principle amount owed.


If you have a lot of debt and no clear plan on how to pay it off, it’s time to talk to a credit union financial advisor and create a plan, starting with high rates products. Credit unions care about your financial success, not just the bottom line, so we will give you honest advice. Find your local credit union here.


  1. Know your rates

If you are a customer with one of the big banks, do some research into the interest rates you’re paying. Some bank loans, for example, charge an interest rate of prime (the variable rate of interest declared by the bank) plus 3 or 4%. But many credit unions offer lower rates for the exact same product! Another option is to talk to your financial advisor about refinancing products with high rates (like credit cards) to lower-rate options (such as a personal loan). If you decide to consolidate debt, a word of warning: make sure you’ve got a plan in place to avoid racking it up again.


You can also try to lock in floating rates (rates that aren’t fixed) to stop further increases from impacting your bottom line. Many credit unions offer products with fixed and variable rate options so you can pick which one is best for you.  


  1. Talk about finances with loved ones

One of the hardest things to do is to talk about money. According to a July 2018 survey, one in five Canadian couples say their partner doesn’t know how much debt they are in and one-third of respondents said finances are a major stress on their relationship.


But here’s the thing – not talking about it won’t make it go away. So sit down with your partner (or parents or children) and start talking. Review your current income and expenses and look at ways to consolidate and put more funds towards debt. Establish short-term and long-term financial goals and make a budget to help you get there.

Although rising interest rates may be the new reality, having less money in your pocket because of them doesn’t have to be your reality. Visit your local credit union today for help creating a budget, locking in floating rates or consolidating debt to better protect yourself from rising interest rates.