All-In-One Accounts: Friend or Foe?

November 5, 2019

 

Yesterday during our Daily Drill, the topic of “All-In-One” accounts came up.

 

I thought it a valuable topic to address here in case you have questions. But please, as always, after you've read this through, take the time to do more research and collect the information required to make a sound financial decision for you and your family.

 

The "All-In-One" account, offered by many financial institutions, combines all your checking, savings and borrowing accounts into one big pot. Since financial institutions typically charge more in interest on loans than they pay on deposits, combining everything into one account should, at least in theory, help you save on interest costs. But as with everything in life, there are pros and cons to this situation.

 

If you have chequing, savings and loan accounts in multiple locations, consolidating all your accounts into one place can simplify and help with timely deposits and payments. Further more, any deposit to the account automatically reduces the balance owing on a loan, so you may benefit from lower interest payments. And since most accounts are secured by your residence, you may be able to borrow at a much lower rate than credit cards and personal lines of credit.

 

“All-In-One Accounts” can be an excellent cash management tool for anyone with irregular income streams. 

However, the drawbacks with “All-In-One” accounts can include extra costs imposed several ways.

 

They can charge interest at what the bank calls a “Base Rate”. Unlike, traditional secured lines of credit, which charge interest based on the Prime Rate (Prime plus 0.5 percent, for example), the Base Rate is not always in sync with the Prime Rate. For example, when the Bank of Canada cuts interest rates, traditional banks, often immediately cut their Prime Rate. However, some other “All-In-One” providers have, in the past, been slow to reduce the “Base Rate” promptly. These delays impose extra interest costs to account holders.

 

Monthly fees, higher than that of regular chequing accounts, may also cost you.

 

It’s also worth noting, you may not always get the best mortgage rate with “All-In-One" accounts.

Finally, be forewarned you might be locked in, and not able to transfer your loan in future. And should you miss a payment, your lender could increase the interest rate for the outstanding term of the debt.

 

The message here, do the math, know the cost, and be able to justify your decision! 😊

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