Too good to be true? Maybe not.
Posted by Gail | Filed under Good ideas
I got a question the other day that I’ve decided to blog on. I’m a big believer in the old adage, “If it looks too good to be true, it probably is,” which is what triggered me to blog this question. A young lad who is planning to buy a home with his girlfriend at the end of the year thinks the Manulife One looks too good to be true.
He’s not the only one. I did a call-in show in Saskatchewan and this type of account was a big topic of conversation. As a result I got another flood of questions about this type of account. So, while I don’t do product endorsements, here’s what I have to say about the Manulife One account.
This is a terrific account as long as you, and everyone else who has access to this account, live by a strict budget.
The Manulife One combines both sides of your balance sheet into one: your debt, like your mortgage, credit cards, loans and your assets, like your income, savings and chequing accounts, into a single multi-purpose account. Short-term savings and chequing account balances are applied on a daily basis to any outstanding debt, reducing your total interest cost.
When you deposit your pay cheques into the account, the outstanding amount of your loan is immediately reduced. Eventually you will need the money to pay your expenses; when you take it out, the loan balance goes back up. But for as long as the money is in the account, the interest clock doesn’t tick on that money.
This account is a GREAT place to keep your emergency fund. If you’re paying 5% on your mortgage and you accumulate your emergency money in this account, it’s would be as if you were earning 5% return, after taxes on that money.
Because of its very structure, you can make lump sum payments whenever you wish without the limitations of a conventional mortgage. Over time, this can mean significant savings in interest costs.
The plan isn’t without its limitations:
- the interest rate on the debt portion is variable so in periods of rising interest rates, more of your money will be going to interest. You can set up one fixed rate sub-account that would allow you to lock in a portion of your borrowings – up to 75 per cent of the current balance – at a fixed rate. So if you’re concerned that variable interest rates are on the rise, you could shelter some of your debt while avoiding the need to close the entire account.
- Manulife One isn’t broadly available. I live north or Cobourg, Ontario and bank in Cobourg, Campbellford or Brighton, and I can’t deposit my cheques to the Manulife One account in any of those places.
One further proviso… and this is a BIG one. If you don’t have the discipline to manage this account in the way it was intended… as a way to pay off your debt faster… don’t even think about this product.
How will you know?
If you use overdraft protection, this product is NOT for you since your discipline and organization are questionable. Ditto if you pay anything less than the full balance on your credit cards, if you use your line of credit to meet monthly expenses or if you borrow money from friends, family or anyone else who will listen to your sob story.
This product has been designed for smart, focused, disciplined people. If you’re that person, have fun and save with the Manulife One.
February 27, 2008 at 11:27 pm
These accounts scare me silly Gail! I had a bookkeeping client who used one and it was a nightmare trying to figure out the interest on the portion that was for credit related to his proprietorship.
I also went to a network marketing sales session where these accounts were the “product”. I can’t remember the name of it though… Anyway, even though I can completely follow the logic of it, for me it’s all just too muddled up and I think most people just don’t have the discipline or clarity of thought to utilize these the way they are advertised.
Plus the way I figure it, just like there is no magic pill to lose weight, there is no magic way to pay off your mortgage. You just have to do it!
February 28, 2008 at 9:36 am
Hi Gail;
Great article. We have a Manulife One and love it! It is a radical departure from the way most people bank and it took us years to believe it was worth switching all our bank products to just one company.
Our financial advisor was patient with us until we ready to make the change. It was worth it although we aren’t debt fighting maniacs.
We like the account because when I was on maternity leave, EI was just 30% of my regular pay. We got through the year without financial worries thanks to the account.
For an anniversary, my husband surprised me a three-day getaway. Prior to having Manulife One, I’d be lucky if he wanted to get out for dinner let alone leave the country.
The point is, yes, we’re paying off our mortgage but more important to us it that from time to time, we can “upgrade” our lives and not argue about where the money is coming from. We’re careful not to end up on your Debt do us part show but this Manulife One is something we telling others about when they ask “how’d you pay for that.”
February 28, 2008 at 11:56 am
Hello Gail,
My husband and I are also Manulife One users and tremendous fans. One thing using the account really brought home to us for the first time was seeing the actual interest in black and white that we were paying on our mortgage broken out each month on our bank statement. That has motivated me more than anything to make sure every extra dollar goes in the account. My husband and I live out of the pencil cases (our jars) and find Manulife One supports that lifestyle because of its moderate inaccessibility. I can only withdraw cash at 3 bank machines in the City of Edmonton where I live so I take money out once per week and we live on that. I echo your wise words, though, this is not a method of banking for people who would be tempted to use it as a way to live beyond their means. However, I also understand that you cannot access this form of banking without very good credit and a fair amount of equity in a home. Thanks for your good work on the blog, I read daily and enjoy it always,
Janell in Edmonton.
February 29, 2008 at 8:41 pm
Hi Gail -
I checked out the Manulife One website and I have a question. If the only debt we have is our mortgage at 4.35%, will we still benefit from this account and if so, how? I am assuming that the principle (the how) is that every extra buck that you have as income that goes into the account is applied to the debt so it goes down faster (you don’t piss away $ that could go towards the debt). Is the idea that at the end of the month, every penny that is in excess of your expenses (and expenses would have to include savings/interest b/c that is money flowing out of the Manulife account, right) is applied to the debt?
Thanks – just trying to wrap my noodle around this “unconventional” but cool sounding banking idea…
Jenn
March 1, 2008 at 9:08 am
It’s more than that Jenn: for as long as the money is in the account, it is applied against the principal, so no interest is calculated on that amount. So even if you used every cent you deposited to your account every month, the amount you put in at the beginning of each pay period would go directly to the mortgage until you did a debit against it. Now the only thing that may mitigate your savings is the fact that 25% or more of your “mortgage” (in your case) would have to be at a variable interest rate, so if rates were going up, you could offset your savings with higher interest rate.
March 1, 2008 at 9:40 am
Thanks Gail – that makes sense.
We’ll look into it in more detail then.
Cheers!
January 22, 2009 at 9:12 am
such a real story..
April 20, 2010 at 12:50 am
I’m so happy that Gail approves of the Manulife One. We have had it for 5 years now, and love it. I locked in $100,000 at 4.19% for 5 years to protect from the interest rates that will go up very soon. (Apr 2010 now and rates the bank rate is 0.25% – lowest in history). I look at the available limit as our emergency fund which grows every pay check, aswell as paying down our mortgage, its great!
You MUST have good money management to have a Manulife ONE account or you will soon find yourself maxed out literally. I keep track of our account on an excel spreadsheet. Any big purchases used from the account get its own column and then I calculate the interest on that item and expense accordingly. Then the rest is mortgage interest. It is nice to be able to pay cash for big items and not have to rely on credit.
We have always paid off our credit cards every month and don’t spend more than we make. We try to put half of our monthly income ($9000 avg) towards our mortgage and hope to have it paid off in another 5 years ($220,000 2 yrs ago). Once it is paid off, then we will max out our RRSP and save half our income. I believe that we will have the same amount of money if not more at retirement as opposed to having a 25 yr mortgage and saving over the same time. But I will actually own my home 20 years earlier and have the security of knowing that no one can take my house away.
April 20, 2010 at 12:54 am
Oh, by the way, you can go to any Royal Bank and make deposits to the account, but withdrawals are harder to do (HSBC bank), unless you write a cheque.
May 19, 2010 at 7:24 am
[...] I’ve blogged on the Manulife One before. The idea behind it is simple. If instead of using a chequing account and a mortgage, you deposit all your money into the Manulife One account, which also holds your mortgage and line of credit, then every day the money is in the account is a day you’re not paying interest on that part of your debt. In other words, it’s like making a prepayment against your mortgage. Then, when you need the money, you pull it out again. But for the time the money is applied against your debt, you save on interest. And since chequing accounts pay nothing, it’s a great way to put your money to work for as long as it’s in your hot little hands. [...]
July 12, 2010 at 11:09 pm
This question goes out to any business people out there using M1.
We had an in-home meeting with a M1 rep and she said that we couldn’t use the account as a “business account”. It could only be used in my name (not business name). We would still have to use our main (TD) business account and then transfer funds over to our M1 account.
Doing so seems a bit labour intensive but we could do it. Just use our business account to cover the bare bones of running the biz and transfer everything else over to M1. We are still in the early stages of d.d. on this product but find it an interesting option.
Any other business people out there have a take on it??? Love to know your experience(s).
Thanks!
July 21, 2010 at 10:22 am
I am thinking about doing the Manulife One thing, but I am fearful that I will ADD years to my mortgage rather than pay it off faster. Right now we have 12.5 years left on our mortgage, and I’d like to use the equity in our home to consolidate our other debts into this one mortgage to save interest overall (and simplify our banking!), but I want to make sure that the 12.5 years remains, or reduces (not extends). Does anyone know – is there a way to calculate things or set things up so that I know exactly what I need to pay MINIMALLY each month in order to NOT extend that time? I guess I am not sure how this works, and I can’t take the plunge until I understand it better.
Any advice?
July 21, 2010 at 11:25 am
Vicki; google mortgage amortization calculators.
You can put the 12.5 years (or more or less) – along with the current amount vs the new amount you want to consolidate to and it will indicate what your new payment will be w/out extending your current amortization. If you can handle the new amount as accelerated payments you can reduce the amortization even further.
August 13, 2010 at 5:30 pm
Is there anyone out there who has a principle residence and rental properties under this type of plan?
I was wondering if the statements are as good as they appear in their booklets. Do they do a good job of putting the debt on rental properties into sub accounts? Can the payments/deposits be applied to debt for the principle residence first thereby maximizing the tax write off for interest paid on the investment properties?
I’ve just started looking into this. Any help is greatly appreciated.
THANKS!
September 3, 2010 at 2:22 pm
I have been reading the blogs on here and Gail is exactly right in her remarks that people holding a Manulife One account need to be dedicated to reducing debt.
As I read these blogs it becomes more clear to me that these people really need to seek a financial advisor in their area that is a Manulife representative or even contact Manulife and get them to set them up with a local advisor who can answer all the questions on the workings of this product as well as get them literature.
As a financial advisor I find it truly amazing the number of people that want to go it alone when trying to budget, save, or invest.
Advisor are licenced individuals that have taken courses on these topics and are required by law to continue their education all year long every year.
You can find advisors out there that are willing to take the time and sit with you to show you what needs to be done and it doesn’t have to cost piles of money. Lets face it you don’t want to be spending piles when you are trying to save it!
November 3, 2010 at 3:12 pm
I am really curious to hear from those who work on commission. My husband works on a regular salary but I am on commission; Some months are really good and others are not. I really like what I am researching so far on Manulife, but don’t want to be in a position where we are worse off than before we began. I do feel that we need to be a bit better budgeting our way through the month; but I do watch every penny and want nothing more than to maximize our ability to be debt free. What do you think of those on commissions using Manulife, Gail and is there a formula that you can use with this program to make sure you stay on track even if income flunctuates.
I am also wondering about fraud prevention with these accounts; I have had to shut down another chequing account because of unauthorized debits. Might be a questions for a M rep.
Thanks
September 27, 2011 at 8:55 pm
How is this any different than a giant line of credit, with your home and vehicles used as security? I assume it’s different, I just don’t understand how.