What Canada’s Giant Savings Treasure Says About Privilege, Anxiety, and Conservative Thinking

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How much savings Canadians have left in savings accounts after more than 18 months of the pandemic?

The amount is similar to the net worth of Microsoft co-founder Bill Gates. This roughly corresponds to the annual economic output of all the Atlantic provinces. That’s more than enough to buy a Rolls-Royce Phantom for all residents of St. John’s or pay for all the Ford F-150 pickups bought in Canada last year, multiple times. That’s enough to buy many mid-priced home subdivisions in Vancouver.

Canada’s savings stock earlier this year was $ 280 billion larger than before the pandemic, according to RBC Economics. Some of that money has been spent, but RBC says there was still about $ 150 billion in additional savings as of July.

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The scenarios that flow from that money include the gap between the financially fortunate people of the pandemic and the people and households who have lost their jobs and incomes, the potential for a big wave of future spending, and conservative decisions, to be polite, that people are wondering what to do with this money.

Higher-income households were less likely to be affected by job disruptions during various economic shutdowns, and their ability to spend on expensive services such as travel and entertainment was reduced. So when we talk about savings, we have to realize that this is a privileged area. You mainly save if you had the money to start.

Pandemic-linked savings withdrawals have found their way into the housing and equity markets and have funded renovations. Freeing up more of that money could fuel another stage of home sales growth after a recent decline, and stimulate the economy if spent on goods and services.

But we could also just hang on to that money. “If history repeats itself since the financial crisis of 2009, the last time we saw an accumulation of savings holdings, we expect that growth. [in savings] will stick rather than fuel future spending, ”writes David McVay, a financial sector consultant, in his latest newsletter.

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Many households have taken bold financial action during the pandemic by plunging the stock market or buying homes in a hot market where bidding wars are common. But it is clear that a lot of people feel better off with a lot of money safe in their savings.

There is no doubt about security if you pay attention to deposit insurance, whether through the Canada Deposit Insurance Corporation or the provincial plans that cover credit unions. What we need to question are the choices people make to keep their money.

Big banks are cleaning up, McVay says. Alternative banks offer a little over 1% interest at best these days, but they only absorbed 3.9% of deposit growth. People prefer the big banks and credit unions which, in Mr. McVay’s report, mostly pay 0.05 to 0.35 percent interest.

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“It’s a huge amount of money that earns no interest,” he wrote.

People who are open to alternative banks, however, pay attention to the rates. Mr. McVay found that some of the biggest growth in deposits were at Canadian Tire Bank, Motusbank and EQ Bank, which offer some of the highest savings rates.

Tangerine was among the alternative players with the biggest drop in deposits. Tangerine, an online bank owned by the Bank of Nova Scotia, pays 0.1 percent on savings.

Mr. McVay calls the flow of savings to the big banks a “flight to quality”. Stressed by the pandemic, Canadians have become engaged savers who primarily trust the physical banks and credit unions they can see on the streets of their towns and villages.

If only half of the $ 150 billion in cash earned 1%, the amount of interest generated would be $ 750 million. That’s enough to buy 25,000 Honda Civics, a four-year undergraduate degree at an out-of-town university for 9,000 students, or 150 million lattes.

If you are lucky enough to have a stake in the Savings Pool, do everyone a favor. Earn interest.

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