SMSF Trustee Cash Conundrum

The SIS Act requires SMSF trustees to act in the best interest of all fund members or beneficiaries.

Are SMSF trustees remiss in their duty if they do not search for current market rates for their cash investments?

Australian bank deposits carry a high level of security due to the federal government deposit guarantee.[1] The enhanced security adds to the high-quality of Australian bank balance sheets, itself a function of sound prudential regulation.

Investors cannot reasonably demand a high-risk premium, yet nothing prevents SMSF trustees from finding the most attractive deposit rates. They are duty bound to do so.

Ever changing strategies can result in some banks offering higher rates from time to time to attract deposits in order to satisfy prudential regulations.

15 banks now face a new Basel Committee liquidity standard called the NSFR.[2] APRA believes the other Authorised Deposit Taking Institutions (ADI’s), essentially banks, would not benefit from the standard because their balance sheets are not complicated.

The new liquidity standard could increase the need for term deposits across a variety of maturities. APRA’s intention is for the NSFR to come into effect from
1 January 2018. The standard aims to establish stable funding for a bank’s assets over a one-year time horizon.[3]

Stricter bank liquidity regulations might tilt the bargaining power in favour of SMSFs. Even a slight tilt is valuable as every basis point counts, although SMSF trustees will need to research thoroughly to take advantage of the offers.

SMSF trustees seek optimal returns for their defensive portfolio just as they are for equities or property. Cash is a material asset class making up over 25% of SMSF total assets.[4]

Every basis point is significant in preparing for a better life in retirement.

Fortunately, the task of assessing and comparing deposit risk is made easier by the equalising effect of the Australian government guarantee, the quality of prudential regulation, and the systemic importance of even minor banks.

A bank deposit loss of any magnitude is politically unacceptable.

So risk comparison is made easier, however the logistics of changing banks is a nightmare.

  • Banks make it so hard to switch deposits
  • I don’t have the time to visit a bank branch, close my account, and visit another bank’s branch to reopen an account
  • My stock portfolio matters more, it makes all the money and it’s fun to manage

Such misconceptions should belong to the past with fintech solutions helping to make every basis point count.

SMSF trustees are not living up to their obligations if they do not make the effort.


[1] See
[2] Net Stable Funding Ratio
[3] APRA consultation package on the Net Stable Funding Ratio, Media Releases, 29/09/2016,



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