Banks Cut Prime to 2.85%: Housing Headlines + MORE Feb 3rd

The stalemate between Canada’s banks and the standard set by the Bank of Canada has ended; the “Big 5” have finally responded to last week’s Overnight Lending Rate cut by lowering their Prime rates to 2.85 per cent, effective today.
Royal Bank of Canada was the first to announce they would implement the discount, releasing the news at 3:50 p.m. on Tuesday. By 6:21 p.m., all the other banks had followed suit – including TD, which famously stated early on that they would not be altering their prime rate in response to the announcement.
And it’s about time – while the banks in the past have followed the BoC’s lead within hours or minutes, it took a full week for them to pass the savings down to their variable borrowing customers (though it took less than 24 hours for RBC and TD to slash their savings rates). The banks’ slow start frustrated customers and drew criticism that they were failing to aid in the BoC’s efforts to stimulate the economy with lower rates…

Q: I am retired and I am 68 years old. I have about $92,000 in RRSPs. I also have a very good pension. I would like to take some money out of my RRSP to replace the roof on my house. I have about $7,000 in unused RRSP contributions this year. Can I use that unused amount to offset the amount of tax I will pay if I take out a lump sum for my roof?—Kate
A: Due to the pressure to contribute and the appeal of a tax refund, many Canadians end up with most or all of their savings in RRSPs, especially in retirement. So when you need cash, your options can be limited.
With respect to your $7,000 in unused RRSP contributions Kate, you can deduct these against your income this year or in future years. This assumes you have $7,000 of RRSP room and you’re not overcontributed to your RRSP.
Unused contributions are contributions that you have made, but not deducted, in previous tax years. They can be deducted at any time, up to your RRSP limit, so it has nothing to do with taking an RRSP withdrawal…

Canadians were blindsided last week when the Bank of Canada announced it was cutting the interest rate to 0.75 per cent. Although most economists had been predicting a rate hike sometime in 2015, plummeting oil prices forced the hand of our central bank.
The Big Banks Stand Pat on Prime Rate
Reducing the overnight lending rate has a far-reaching impact that will be felt throughout the Canadian economy. The Bank of Canada’s hope is that lower interest rates will help jump start our stalling economy – but it’s a good news, bad news story for most Canadian consumers. Borrowers can expect to pay less on their debt repayments once the banks in turn cut their Prime rates (so far, RBC is the only lender to announce a Prime cut to 2.85 per cent, effective January 28) . While historically, banks have taken only days to cut Prime after a rate cut, no one has made a move yet. In fact, TD Bank has already publically announced it will not be lowering its prime rate in response to this month’s rate announcement…

(Illustration by Sebastien Thibault)
By 2017, all Ontario employees could have access to a secure defined benefit pension plan, thanks to new legislation being tabled by the provincial Liberals. The Ontario Registered Pension Plan (ORPP) is Premier Kathleen Wynne’s response to the federal Conservatives’ decision not to enhance CPP.
Some fear the plan’s mandatory contributions would handcuff investors’ autonomy, and leave already stretched workers and employers short on cash. However, it would achieve its ultimate goal: If the plan is implemented as proposed, many Ontarians will find that they don’t have to save for retirement on their own at all.
The ORPP will require all employees in the province not already enrolled in a comparable workplace plan to sock away 1.9% of earnings (on their first $90,000) in a professionally managed, low-cost fund. Employers will have to kick in 1.9% as well.
66%
Workers in Ontario not enrolled in a workplace pension plan
Source: Ontario Ministry of Finance
“I think a mandatory savings program makes sense,” says pension policy expert Bob Baldwin of the C…

To say that Alison Brady was at a loss for what direction to go with her retirement savings is an understatement. To be honest, the 24-year-old hadn’t really given it much deliberation.
“I think some of the attitudes about money I developed in university still persist today, so the thought of even putting away $25 every two weeks was like, ‘but that’s a dinner out or a few drinks’,” says the marketing specialist at RateSupermarket. “Thinking about retiring in 35 years is not something that enters my thought process on a daily basis.”
Funding Life’s Milestones
This apprehension is a common thread among twenty-somethings says David Trahair, a Toronto-based chartered professional accountant and consultant.
“We have all seen the compelling numbers related to starting to save early for retirement,” he says. “If you put just $2,000 a year away from age 25 to 65 and earn a 7 per cent annual rate of return, you’ll end up with a nest-egg of $459,264.”
And while the “magic” of compounding investment returns can make the strategy sound great, Trahair points out that most people in their twenties are just starting to shake off student debt and lay the ground work for financial stability…