Cash is a very important component of Australia’s growing army of self-managed superannuation funds (SMSFs).
According to Australian Taxation Office (ATO) data, SMSFs holdings of cash and term deposits rose to a record high of $158.9 billion in the June quarter, up from $157.3 billion in the March quarter. Cash investments now represent 26% of total SMSF assets.
SMSFs invest in cash as an asset class, as part of the defensive portion of their asset allocation, and also use cash investments as a parking place for monies on their way into or out of the fund.
Different cash products in the marketplace cater to these two ways in which SMSFs use cash. But whether it is cash that the SMSF needs to handle as part of its investment activity, or cash that is invested, the cash holdings should be treated as an investment in their own right. This means thinking about how to earn the best return on your SMSF’s cash.
Savvy SMSFs operate a savings account in addition to their cash management account, ensuring that all of their cash assets are working as hard as possible. The cash management account should hold cash for paying the costs of running the SMSF, with the remainder eg. monthly superannuation guarantee (SG) contributions held in the savings account.
Savings accounts – particularly online accounts – are a very competitive market, and as an SMSF holder you should always be prepared to check the market for a better rate. There are a range of savings accounts available and with differences of over 1.40%, it’s important to understand your options.
In addition to the standard online savings accounts, there are also accounts that pay you additional interest when you increase your balance by a minimum amount each month, as well as a new breed of accounts from RaboDirect called ‘Notice Savers
’. The RaboDirect Notice Savers require customers to notify the bank about withdrawals in advance (the notice period) in return for a higher rate of interest. The longer the notice period, the higher the rate of interest. Using a mixture of these savings accounts, as well as term deposits, will enable you to maximise your cash returns, while also giving you the flexibility to invest in any opportunities that may come along.
When managing your term deposits, it's also important to take into account any loyalty bonuses that your bank may provide. As an example, RaboDirect offers a 0.10% bonus for rolling over a term deposit
Understanding how to maximise your cash returns makes a lot of sense, especially if you’re thinking of making additional contributions to superannuation. In our next article I’ll shed some light on some of the changes that the government has made to super, and how you can take advantage of the current rules.
This article originally appeared in Switzer Daily. Switzer Daily is a business, consumer finance and investment commentary website. View the original SMSF article on Switzer Daily.
Disclaimer: The views expressed, and any advice given, in the above article are those of the author, and do not necessarily reflect the views of RaboDirect. We recommend that you seek professional advice before making any decisions relating to the matters discussed in the article.