All-in-one bank accounts: Solution or temptation?

You can cut the cost of borrowing and gain flexibility, but it's important to be disciplined.

Deanne Gage 3 July, 2015 | 5:00PM

The "all in one" concept suggests simplification, making one's life easier. But in the case of all-in-one bank accounts, streamlining the process may or may not be a good thing, depending on your circumstances.

Here's how all-in-one accounts work. Your mortgage, banking accounts and consumer debt are rolled into one account. You can then, similar to an everyday bank account, track all your transactions and balances simultaneously. The goal is to better manage cash flow while reducing debt, says Jason Daly, vice-president of product marketing and business development at Manulife Bank.

But this isn't just a matter of merging accounts. It's also about getting a lower interest rate on all your liabilities. Daly uses the example of a savings account earning 1% while you are paying 3.5% interest on your mortgage. Pool those funds together and your money will work harder for you.

"You are able to take those funds and put those immediately toward the principal against your mortgage," Daly says. "It essentially limits the opportunity costs of having idle money sitting around in other accounts. You'll be much further ahead and be able to reduce debt faster over time."

Not many financial institutions offer all-in-one accounts. The most well known are from Manulife, National Bank Financial and Sun Life. They are set up similarly to home-equity lines of credit (HELOCs). With HELOCs, the financial institution will loan up to 65% of your home's value, or 80% if you take on a traditional amortizing mortgage that sits within the all-in-one account for the remaining 15%. You must have at least 20% equity in your home to qualify for a HELOC.

More flexibility with managing finances can be a selling point with all-in-one accounts, Daly adds. Often the minimum monthly payment is just the interest, appealing to those who are paid variable income. They can put as little or as much as they like toward their mortgage without penalty. "It may be difficult for some, like someone in commissioned sales, to commit to a fixed amount every month," he says.

Jennifer Moore, CFP, an independent financial planner based in Toronto, recommended an all-in-one account as a possible solution for a couple that fell into financial difficulty when the sole income earner lost his job and then had to take a temporary contract position. They had no mortgage or HELOC.

After working with a banking consultant to fully understand the product, and analyze their situation in full, the couple opted for this solution. They ended up consolidating their significant credit-card debt, resulting from extensive medical bills, into an all-in-one account. This was designed to ensure they could get through his period of unemployment and under-employment without losing their house.

"They had no other debt to speak of, and otherwise live within their means" Moore says. "They only have to make the interest payments, which is helping them through this financial crisis."

These accounts sound great in theory. Who doesn't appreciate paying down debt or building up equity faster? But they aren't without warning flags. Laurie Campbell, CEO of Credit Canada Debt Solutions, doesn't recommend them for anyone who is not extremely disciplined with their money.

Otherwise, things could go south very fast, she says. "The reality is as life happens, it's easy to say 'we're running short this month so let's pay less on our mortgage,'" she says. "If that happens more than once you're not really on target with your plan to get rid of your mortgage in a reasonable period of time."

Campbell notes today's trend of delaying debt repayment. Statistics show more seniors, for instance, carrying a mortgage well into retirement, something unheard of a decade ago.

Too much flexibility can also backfire. Take the analogy of a couple that chose not to pay down the debt principal with an all-in-one account. Let's say the husband lost his job and they ran out of areas where they could draw money because they were so indebted. "People like this, who cannot control their discretionary spending, are better off with a regular mortgage that requires principal and interest payments and the imposed discipline of that type of arrangement," Moore notes.

She also finds that some couples are wary about the concept of consolidating all their assets and liabilities in one account even if it saves them more money. "It can be an emotional hurdle that is hard for them to get over," she says.

Some all-in-one accounts, like National Bank's offering, may allow you to create multiple accounts within the account so you can keep track of everyday expenses and your mortgage.

Then there's the matter of fees. Manulife One charges a flat fee of $14 a month for all banking services. The interest rate is currently 3.35%. Depending on your circumstances, you may be able to find a comparable rate with more traditional mortgages and HELOCs. "Interest rates are so low on so many products other than a credit card that people have many ways to finance their lifestyle," Campbell says.

About Author

Deanne Gage

Deanne Gage  Deanne Gage is a Toronto-based writer who has specialized in personal-finance issues since 1999. A recipient of several journalism awards, including one from the Investment Funds Institute of Canada, she is also a former editor of Advisor's Edge and Advisor.ca. She can be reached at deannegage@gmail.com.