High interest rates have hurt the wallets of lower-income Canadian households the hardest, according to new research from Statistics Canada.

The report from the federal agency published Monday found the disposable income gap between the top 40 per cent of earners and the bottom 40 per cent of earners climbed 0.5 percentage points in the third quarter of 2023 compared to a year prior.

The agency pointed to high interest rates for the growing gap.

Higher loan payments have taken a bite out of disposable income for the lowest earners, StatCan said, leaving them with little money to invest in a time of high yields.

“While higher interest rates can lead to increased borrowing costs for households, they can also lead to higher yields on saving and investment accounts,” the report stated. “The lowest income households are more likely to have a limited capacity to take advantage of these higher returns, as on average they have fewer resources available for saving and investment.”

For example, guaranteed investment certificates (GICs) were stuck with low returns for years due to ultra-low interest rates, but are now an attractive opportunity. GIC investors can rake in returns of more than five per cent, depending on the maturation time, investment value and the financial institution.

High-income households took advantage of the attractive investment environment, the report said. The top 20 per cent of earners gained 3.2 per cent of disposable income in the third quarter, as their wages climbed 5.7 per cent and their net investment income climbed 9.9 per cent, the report found.

Meanwhile, net savings for the lowest-income households declined by 9.8 per cent in the same period, as cost-of-living outpaced their wage increases and investment returns. This means that lower-income Canadians are dipping into their savings to pay the bills.

Young Canadians’ mortgage debt

The youngest households were the only ones to shrink their mortgage debt in the third quarter compared to 2022. However, Statistics Canada noted that the data point might be a positive one, as it could indicate that more young people are turning away from homeownership or selling their homes due to affordability concerns.