Head-to-head: yield potential versus accessibility

Your clients may not know their cash management account (CMA) is acting as just a repository for their money, and may be missing opportunities for their money to work harder and produce better interest.

Alternatives to CMAs are broader than you might think

Term deposits are perhaps the best-known alternatives to CMAs. They’re an important product for banks’ long-term funding, and subsequently pay higher interest rates to savers than transaction accounts. But there’s a barrier to entry. Traditionally, only clients with surplus funds – comfortable with cash being locked away for a stretch – enjoy the higher yields of term deposits. The other type of client tends to house their cash in lower-interest CMAs for fear of not being able to readily access their money.

Fortunately, today there’s a middle ground with an At Call facility.  At Call products are becoming more popular, there is also the emergence of notice accounts, providing more choice for advisers and their clients.

Term Deposits At Call Notice accounts Cash management accounts
= highest yielding + lowest accessibility = high yielding + high accessibility = high yielding + low accessibility (min 30+ days) = lower yielding + high accessibility

Products that leverage higher rates and have flexibility are becoming increasingly attractive to newer cash investors.

So where should you be directing your client’s cash?

Term deposits

Three reasons to have a term deposit

  • High yield: you’ll potentially get better interest rates for your clients than At Call deposits and CMAs; and there’s virtually no risk of them losing their money.
  • Secure return: these longer term commitments generally deliver a higher interest rate; and the interest rate will not change over the term you select.
  • Predictable outcome: term deposits provide a fixed rate of interest at maturity; and all deposits up to $250,000 per person, per Institution are guaranteed by the Federal Government.

Three considerations before opening a term deposit

  • Lost liquidity: the deal with term deposits is that the money is locked up and while some banks allow customers to break their term before maturity, we encourage you to understand the fine print as in some circumstances early redemption of funds may take time.
  • Rate risk: term deposit rates are influenced by the Reserve Bank cash rate, potentially not ideal in today’s environment.
  • Opportunity risk: you might miss a potential opportunity if you’re locked in and can’t move funds easily to another term deposit or product with a more attractive rate.

At Call products

Three reasons to have an At Call account

  • Ready access: if you want to move your deposit elsewhere seeking better returns, you can do so immediately.
  • Level of liquidity: you’ll have the ability to readily add and withdraw funds.
  • Higher yield: you’ll be able to review from a selection of market competitive At Call interest rates than basic savings accounts or CMAs may offer.

Three considerations before opening an At-Call account

  • Notice period: some At Call accounts require a notice period on large withdrawals.
  • Minimum buy-in: many may require a minimum entry level, untouched for a period.
  • Less than term: At Call deposits generally provide reduced interest rates than term deposits.

Notice products

Three reasons to have a notice account

  • High yield: notice account rates can sometimes be higher than term deposit rates for a parallel shorter term.
  • Some access: greater accessibility to funds than a term deposit, though never immediate.
  • Top ups: you can deposit additional funds to a notice account.

Three considerations before opening a notice account

  • Delayed reaction: if rates change and you want to reposition your client’s funds, you may have at least a month-long wait ahead of you.
  • Limited products on offer: notice accounts may not be in huge supply.

Making a call: At Call, notice or term?

Like all financial decisions, the product type ideally has to match the objective: does your client have surplus cash they are adamant they won’t need over a set period? Or are they likely to want to access their money, or part of it within the coming months or years? Term deposits and At Call accounts are similar in that they potentially deliver better returns, however they are different. Term deposits reward illiquidity with higher rates while At Call products offer immediate access to cash as well as a higher interest than standard checking or savings accounts (though lower than a term deposit). The At Call product concept was created with an aim to give the customer the best of both worlds: better rates and access.  And now notice accounts have begun to enter the market with more vigour.

There can be penalties for early withdrawal on term deposits, but full commitment to maturity in term deposits has historically been a worthwhile trade for illiquidity.  The access periods on notice accounts may be attractive, but it’s unlikely you’ll be able to capitalise on a better product or rate in a timely fashion. At Call sacrifices a bit of the upside for total liquidity, adding the advantage of flexibility to jump onto a better rate, access a new product or pocket the cash.

Login to the Cashwerkz platform to see the latest At Call rates.

Cashwerkz Pty Ltd (ACN 164 806 357) holds an Australian Financial Services Licence (No. 459645). The information contained here is for information purposes only and does not purport to contain all matters relevant to any particular or financial instrument. It is not intended to be a recommendation, offer or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should read the relevant Financial Services Guide and Product Disclosure Statement available from www.cashwerkz.com and seek independent and specific advice from an appropriately qualified professional. Cashwerkz Pty Ltd shall not be liable for any errors, omissions, defects or misrepresentations in the information or for any loss or damage (whether direct or indirect) suffered by persons who use or rely on the information contained here.

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