Bank rate (Bank of Canada)

A buyer pricing an acquisition loan may be quoted a rate tied to prime and wonder how the bank rate fits in. Three rates are easy to confuse, and each has a different setter.

Three rates, three setters

The Employment Insurance Regulations define the bank rate in the words above. The Bank of Canada’s Interest rates page shows the Bank Rate alongside the target for the overnight rate, which the Bank adjusts on fixed dates each year. The Bank also says each financial institution sets its own prime rate as a function of its cost of funding, which is influenced by that overnight target. BDC describes prime as the reference rate lenders use to set variable rates on loans.

What to ask a lender

• Is the loan fixed or variable, and what is it priced against?
• Does the rate move automatically when the lender’s prime changes?
• Which date’s rate applies to the loan, and when does it reset?

See how do I get a loan to buy a business and prime rate. The policy interest rate is covered separately under policy interest rate.