Prime Rate in Canada: What It Is, How It's Set

Prime Rate in Canada: What It Is, How It’s Set

The prime rate is a base rate set by Canadian financial institutions to determine the variable interest rates they can charge on lending products, such as mortgages and loans. A bank’s prime rate is based on the Bank of Canada’s overnight rate, which changes multiple times in a year.

Editor’s Note: On September 4, the Bank of Canada reduced the overnight rate to 4.25%. This is the third time the Bank has cut rates in 2024. An overnight rate cut may dampen GIC and savings account interest rates. The next rate announcement will take place on October 23, 2024.

The prime rate is a base rate set by financial institutions in Canada to determine the variable interest rates they can charge on lending products, such as mortgages and loans.

A bank’s prime rate is based on the Bank of Canada’s overnight rate, also referred to as the policy interest rate. The overnight policy changes impact the prime rate, further affecting the interest rates of financial products, regardless of the type of interest tied to them.

The prime rate in Canada, as of Sept. 4, 2024, is 6.45%.

When you’re considering a new line of credit or a mortgage with a variable rate, you also will need to keep a close eye on the prime rate. This will ultimately determine how much interest you’ll pay over time, in addition to repaying the principal amount you borrowed.

What is the prime rate?

The prime rate, also referred to as the prime lending rate, is an interest rate set by large Canadian financial institutions, such as the Big Six banks. While each bank sets its own prime rate, the posted prime rates for major banks are often the same.

Their prime rates depend on the Bank of Canada’s policy interest rate, which is the average interest rate for one-day loans between financial institutions. For instance, if the Bank of Canada’s benchmark overnight rate increases, it costs financial institutions more to borrow and lend funds to each other.

Policy interest rate vs. prime rate

Policy interest rate	Prime rate
Also referred to as overnight rate.	Also known as the prime lending rate.
The policy interest rate is determined by the central bank and used as a base by commercial banks for lending.	Each financial institution sets its prime rate, which is influenced by the Bank of Canada’s target overnight rate.
Usually lower than the prime rate.	Usually higher than the policy interest rate.

How does prime rate work?

The prime rate serves as the basis for the interest rate that lenders will charge for certain loans, such as variable-rate mortgages and car loans, home equity lines of credit (HELOCs) and unsecured lines of credit.

In many cases, you won’t pay the actual prime rate on your loan. Financial institutions typically offer rates in terms of the prime rate plus or minus a certain percentage. And the rate you’re offered depends on conditions in the lending markets and on factors, like your credit, the amount you’re borrowing and whether the loan is secured.

How often does the prime rate change in Canada?

The prime rate can potentially change eight times in a year, in line with the Bank of Canada’s eight fixed annual announcements on policy interest rate decisions. In 2022, the prime rate was raised seven times after the Bank of Canada’s announcements.

Where to find the daily prime rate online

The Bank of Canada’s website provides a daily digest that includes the current overnight rate, as well as other financial information, such as Government of Canada bond yields and exchange rates. Each of the large financial institutions post their prime rates on their websites, often on pages specific to relevant borrowing products.

What is the prime rate now?

On Sept. 4, 2024, following the Bank of Canada’s overnight rate cut to 4.25%, most of Canada’s major banks — including the Royal Bank of Canada and TD Bank — reduced their prime rates to 6.45%

How often does the prime rate change?

The prime rate has the potential to change eight times a year, in line with the Bank of Canada’s eight fixed annual announcements to announce policy interest rate decisions.

In 2023, the prime rate has changed three times after the Bank of Canada announcements. So far in 2024, it has also changed three times.

Where to find the daily prime rate online

History of the prime rate in Canada

Historically, the prime rate hit a record high of 22.75% in 1981 and fell to a low of 2.25% in 2009.

Between 2020 – the start of the COVID-19 pandemic – and June 2024, the average prime rate ranged between 2.45% and 7.20%.

In March 2020, financial institutions — in response to the Bank of Canada’s move to lower the target overnight rate to 0.25% to support the Canadian economy during the pandemic — decreased the prime rate three times that month until it reached 2.45%, where it stayed until March 2022.

The Bank’s policy rate increased three times in 2023, and each time the prime rate changed as a result, increasing from 6.70% in January 2023 to 7.20% in July 2023. The prime rate remained unchanged from July 2023 until June 2024, when it decreased slightly to 6.95%.

Effective Date	Prime Rate	Change
Sept. 4, 2024	6.45%	-0.25%
July 24, 2024	6.70%	-0.25%
June 5, 2024	6.95%	-0.25%
July 12, 2023	7.20%	0.25%
June 7, 2023	6.95%	0.25%
January 25, 2023	6.70%	0.25%
December 7, 2022	6.45%	0.50%
October 26, 2022	5.95%	0.50%
Sept. 6, 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%
March 29, 2020	2.45%	-0.50%
March 16, 2020	2.95%	-0.50%
March 4, 2020	3.45%	-0.50%
Oct. 24, 2018	3.95%	0.25%
July 11, 2018	3.70%	0.25%
Jan. 17, 2018	3.45%	0.25%
Sept. 6, 2017	3.20%	0.25%

What is the prime rate today?

The prime rate in Canada, as of Sept. 4, 2024, is 6.45%. This is the second drop we’ve seen this year.

The July 2023 update marked the Bank of Canada’s third and last 25-basis policy interest rate increase last year. These increases were a bid to combat the annual inflation rate, which was recorded as 3.3% in July 2023, according to Statistics Canada — higher than the bank’s target of 2% inflation.

How the prime rate impacts interest rates for borrowing money

The prime rate has a direct correlation with rates lenders charge for a number of loans and lending products.

Variable-rate loans

As their name suggests, the interest on variable-rate loans, including some types of mortgages and car loans, is tied to prime interest rates. When the prime rate goes up or down, the interest rate on your loan changes accordingly.

Note that if your lender’s prime rate increases, it doesn’t necessarily mean your monthly payment will increase. Often, your payment may remain the same, but more of your repayment amount could end up going toward interest, rather than the principal. As a result, it may take you longer to pay off the loan.

Before taking out a variable-rate loan, make sure you fully understand how the interest rate can fluctuate and affect your total payment.

Lines of credit

With a line of credit, including a HELOC — a secured form of credit where your home is used as the guarantee on the funds you borrowed — an increase in the prime rate could bump up the interest rate on your outstanding balance. This change could result in higher monthly interest payments.

Similarly, the interest rate on unsecured lines of credit, such as a personal line of credit, are generally tied to the prime rate. This means that the interest you pay on your balance can change without advance notice when the prime rate fluctuates.

Credit cards

Many credit cards charge a fixed rate of interest that isn’t linked to the prime rate. However, some credit cards link their interest rates to the prime rate. These cards charge variable rates that are often described as “prime plus” a certain percentage of interest that depends on your credit rating. If the prime rate goes up, all monthly interest payments on outstanding balances will also increase.

For example, a credit card may charge interest on purchases and cash advances at a rate of prime + 4.99% to 8.99%. Customers with a better credit rating typically receive a lower rate. However, if the prime rate goes up, so could your interest payment — regardless of your creditworthiness.

For now, no. So far, the Bank of Canada has reduced the policy rate (the overnight rate) twice this year in order to get inflation back to its 2% target. Although inflation in Canada is showing signs of slowing down, the Bank’s projections state that it will stall around 3% for another year.

Each time the Bank raises the overnight rate, several major commercial banks raise their prime rates. Since the most recent interest rate announcement, on Sept. 4, 2024, which brought the overnight rate to 4.25%, the banks’ prime rates have gone down to 6.45%.

If the prime rate were to go down, the cost of paying interest on variable-rate loans, such as mortgages or lines of credit, would also decrease. As a result, more of each payment would go toward your loan’s principal instead of the interest. Lower rates also mean it costs less to borrow money, which encourages people to spend more and boosts the economy.

How to Get a Loan From the Bank

To borrow money from the bank, you’ll have to satisfy the qualification requirements of the loan you want, such as age, debt-to-income ratio and credit score.