Canadian Tire has decided to offer more financial services and is now offering mortgages and a combined mortgage, loan, chequing and savings product (similar to Manulife One account) called the One-and-Only account in Ontario, Alberta and BC. The idea behind combined accounts is that by consolidating your debts into one account, you take advantage of the lower interest rate on your mortgage and save some interest on the time lag between your incoming and outgoing cash.
In theory, the one account is a great idea. In practice though, there is one large problem: the interest rate on these combined accounts is at prime, whereas typically you can easily get a 0.90% discount to prime with a traditional variable rate mortgage. On a $200,000 mortgage, the traditional variety starts out with roughly a $1,800 per year advantage. Now, let’s imagine that your household net income is $5,000 that is paid into your account on the first of the month and everything is spent or saved by the end of the month. So, by keeping $5,000 in your account for roughly the entire year, you are saving $300 in interest costs with a combined account. In this scenario, your “savings” from a combined account does not make up for the cost of not opting for a traditional mortgage. You can check out different scenarios using the nifty calculator on the Canadian Tire website.
Call me skeptical but until these accounts start offering a discount to prime, the basic math just doesn’t work out. Still, the One-and-Only account is a significant new competitor to the Manulife One account (review by Million Dollar Journey) because there are no monthly fees.