As ever when the economy struggles, interest rates are being held at low levels that encourage borrowing and instill a feeling of futility in savers.

Bank of Canada governor Tiff Macklem said last week that rates will stay low until the economy recovers from the damage caused in the pandemic. “If you’ve got a mortgage, or if you’re considering to make a major purchase, or you’re a business and you’re considering making an investment, you can be confident that interest rates will be low for a long time,” he said.

Savers, you’re roadkill on this long stretch of highway leading to a stronger economy. Rates on savings accounts and guaranteed investment certificates held up reasonably well in the early months of the pandemic, at least among alternative banks and credit unions. But in recent weeks, we’ve seen a depressing pullback. Just three online banks now offer savings account rates of 2 per cent or more, and five-year GIC rates come at 2.3 per cent and lower. Much lower at the big banks.

There’s nothing exceptional about what’s happening here in Canada with rates. As noted by money manager and blogger Ben Carlson, close to 90 per cent of countries have government bond yields of 1 per cent or less, and 40 per cent of this group of countries has negative yields.

If you’re wondering how stocks can keep soaring while the economy struggles, look to those low yields on bonds and savings. People are willing to accept the greater risk of stocks to get far higher yields from dividend-paying common and preferred shares.

Those who have the time to wait 10 years or more for their stocks to recover from any corrections or crashes ahead should be fine subbing dividend stocks for bonds. If you might need your money sooner, or if you simply don’t want your money exposed to a big stock market decline at any time, then you’ll have to live with low rates. There just isn’t any way to get a better return with no risk.

As the pandemic shut down the economy in March, financial success was measured by how much money you had saved and available for emergencies. No one disparaged saving because the returns were modest. Having the money available was everything.

Remember that when looking at the pitiful rates on savings accounts and GICs. Safety has value in this year of overriding uncertainty.

The Globe and Mail, July 23, 2020