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With two more interest rate cuts expected this year, older Canadians on fixed incomes may feel a squeeze on their investment income. Lower rates mean cheaper borrowing but also weaker returns from savings like GICs. For seniors, that could mean less monthly income — and it might be wise to consider essential big-ticket purchases now, while earnings are still relatively stable.
Here’s a simple explanation of what this means, especially for older Canadians on fixed incomes:
💰 What does it mean to "cut it twice"?
The Bank of Canada sets a key interest rate that influences borrowing and savings rates across the country.
Cutting the interest rate means lowering that rate, which usually makes loans (like mortgages) cheaper but also means you earn less interest on savings.
So, when economists say the Bank will “cut it twice” this year, they expect two more decreases in the interest rate before the end of 2025.
👵 What does this mean for people on fixed incomes, especially seniors 65+?
Many older Canadians live off savings, pensions, or fixed investments like GICs (Guaranteed Investment Certificates).
Lower interest rates = lower returns on savings. So, seniors might earn less monthly income from their investments.
Example: If a $10,000 GIC gave you $275 per year at 2.75%, a cut to 2.0% might drop that to $200. It may not seem like a lot, but for someone on a tight budget, it matters.
📉 What does it mean for the economy in general?
Lower rates make borrowing cheaper, which can help people and businesses spend more.
This can stimulate the economy if things are slowing down.
But, if the economy is already growing faster than expected (like the recent 2.2% growth), cutting rates too much could lead to higher inflation (prices going up).
The Bank of Canada is trying to balance keeping inflation low while not slowing down the economy too much.
🧾 Summary for Older Canadians:
If you rely on interest income (from savings or GICs), rate cuts may shrink your monthly earning
If you're borrowing (e.g., a mortgage or line of credit), cuts can lower your payments.
Overall, it’s a mixed bag—but many seniors on fixed incomes feel the pinch when rates go down too much.
🛍️ Should seniors consider buying big-ticket items now, before rate cuts shrink their investment income?
In simple terms: Yes, it might be a good idea — but with some caution.
Here’s why:
✅ Why buying sooner might make sense:
Investment income may drop
If the Bank of Canada cuts rates, GICs, savings accounts, and other fixed-income investments may pay less interest. That means less money coming in monthly — so it may be harder later to afford a large purchase.
Prices may rise later
Lower interest rates often encourage more borrowing and spending, which can lead to higher prices on things like appliances, vehicles, or even home renovations. Buying now could mean paying less than in 6–12 months.
You may still have stronger cash flow now
If you’re renewing or still holding investments with higher interest rates, you may be in a better position to make larger purchases comfortably now rather than later when rates fall.
⚠️ But be careful:
Don’t overspend or dip too deeply into emergency savings — even if rates are falling.
Make sure the item is truly needed (e.g., replacing a worn-out appliance or vehicle, not just upgrading for convenience).
Avoid taking on new debt, especially with variable interest rates, unless you're sure you can handle the payments even if your income shrinks.
🧾 Summary Part 2:
If you have the funds and a real need, yes — buying now can be a good strategy to beat falling returns on your savings. Just make sure the purchase is wise and doesn't leave you financially stretched later.
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Ed Zirkwitz has been a CPA for 40 years. He currently enjoys a daily walk or hike, plays Bridge at the Evergreen Seniors' Center and takes on the odd round of whipper-snipping the yard. The above article was edited with the assistance of AI. Ed approves.
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