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Written by Matt Kirk Published: May 6 2020 Investments
It’s 1 July. The flurry of 30 June has passed, and 52-year-old Diane and her 54-year-old husband Peter are now surveying their options. After selling their business, their financial adviser recommended they take advantage of the bring-forward rule and make a $250,000, non-concessional after-tax contribution to their self-managed super fund (SMSF) before financial-year end. They would like to purchase an investment property but are still looking for the ideal one, and they’re also keen on taking their annual trip to Europe. Currently, their money is just sitting in cash and they’re now looking at where to invest it for the short term to get a better return while they plan their trip and look for an investment property.
Although Diane and Peter are fictional, the situation of SMSF investors making the most of the bring-forward rule and needing to choose where to invest their money is not unusual. According to the ATO’s SMSF quarterly statistical report March 2019, 23% of SMSF assets are invested in cash and term deposits, representing a whopping ~$170b in funds. If you consider that the average SMSF balance exceeds $1.2m, it pays to shop around for the most competitive rates as it can have a significant impact over the long term.
It’s a well-known fact that banks offer different rates across term deposits, at call accounts and cash management accounts (CMA). But what impact can a different rate have on the bottom line?
Diane and Peter are looking for opportunities to invest their cash for higher returns, but still want to access their funds. They’re considering an at call account. Let’s look at an example of the returns on an at call account vs a CMA.
The effect of a lower rate is only magnified over the long term thanks to the effects of compounding. If we consider Diane and Peter’s scenario, the difference between holding their money in a CMA versus an at call account could impact their lifestyle in retirement.
Diane and Peter told their adviser that annual travel abroad is a priority. With a differential in income of more than $3,000 per year, that would cover their two economy-class return flights to Europe, with a bit left over for a few dinners and sight-seeing tours.
One of the challenges for SMSF investors is deciding where to park their cash. While it is true that all SMSFs must have a bank account to accept contributions and pay the fund’s expenses and liabilities, it doesn’t mean that the bank account is the only option for holding cash.
Cashwerkz’s secure online cash management platform allows SMSF investors to choose from a range of competitive cash investments offered by a wide variety of Australian banks and financial institutions. The research, selection, application, transaction and reinvesting process can all be done through the Cashwerkz platform, with no fees charged to your clients. Clients can choose from at call accounts and term deposits, and can enjoy streamlined switching of term deposits upon maturity to a new rate with the same or different provider.