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Written by Matt Kirk Published: May 6 2020 Investments
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?
Three reasons to have a term deposit
Three considerations before opening a term deposit
At Call products
Three reasons to have an At Call account
Three considerations before opening an At-Call account
Three reasons to have a notice account
Three considerations before opening a notice account
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 or call us on 1300 721 005 on weekdays between 8am and 5pm (AEST).