If you’ve ever seen the “What’s your number?” commercial, you might be curious about the Manulife One account and how it works.
The Manulife One account combines your debt, savings and income into one easy to use chequing account. Similar to a traditional home equity line of credit, Manulife One provides you with a secured line of credit – up to 80% of the appraised value of your home.
The Manulife One base interest rate is 3.50%, which higher than other banks’ variable rates, but lower than most home equity lines of credit.
Manulife One: The Basics
Your first step is to use the Manulife One account to repay your other higher cost loans, such as credit card debt and personal loans. This may significantly reduce your overall borrowing costs by consolidating your debt at one low rate of interest.
Next, deposit your savings into the account to reduce your interest costs. This strategy makes sense because you’re likely paying more interest on your debt than you will earn on your savings accounts, chequing accounts and GICs.
Finally, by depositing your income into the account each month, you immediately pay down your debt – reducing your interest costs even further.
Manulife One: The Catch
Since Manulife One works just like a regular chequing account, your money is easily accessible at anytime. There are two problems with this all-in-one feature:
- Like other unlimited bank accounts, the Manulife One account comes with a monthly fee. In this case, the account fee is $14 per month and can’t be waived.
- Unrestricted access to your home equity through a chequing account can lead to spending problems for undisciplined homeowners. Too many Canadians are addicted to spending and use their home equity line of credit like an ATM. Linking your home equity to a debit card could magnify this problem for many Canadians, especially for a first time home buyer.
In 2005, Manulife commissioned a study by Moshe Milevsky to investigate the financial advantages of Canadians consolidating their debt. The study noted that debt diversification is harmful and recommends that Canadians:
- consolidate their debts at the lowest rate possible
- use short-term assets to reduce those debts with the option to borrow back if needed
- manage their debts in the most tax-effective manner possible – reducing their taxable interest earnings by paying down their non-deductible debt
The study showed the average Canadian homeowner could probably save money each year just by optimally managing their debts and short-term assets.
Manulife has the right idea when it comes to consolidating non-mortgage debt and short-term savings into one low interest mortgage/line of credit. Note that homeowners will need to have more than 20% equity in their home to take advantage of the Manulife One account.
If you have some equity in your home, but you carry high interest debt, the Manulife One account might be worth a look to consolidate your debt. However, if the temptation to spend your home equity is too much to resist, then a traditional line of credit that is not linked to your debit card is probably a better option.