The biggest changes to super in a decade come into effect at the end of this week. While for many members this means seeing if they have any additional capacity to make super contributions, it doesn’t mean that you have to decide what shares or other growth assets to invest in now.
Super is an investment vehicle, not an investment asset per se. Make the contributions (and make sure they are banked by 30 June), but if you don’t know what assets to buy or don’t particularly like the share market at the moment (as in my case – see here [1]), then put the money in cash or on a term deposit.
With that in mind, here is our latest review on the best cash and term deposit rates. And while it can be a hassle to change banks, if you want that extra 0.25%, be prepared to shop around because the rates vary considerably between the financial institutions. But don’t be put off by security concerns, because with the effective Commonwealth Government guarantee on deposits of $250,000 on a per client per financial institution basis, Bank A is as good as Bank B up to $250,000.
Bank Accounts
Most banks offer tailored accounts for SMSFs (see below), which are fee free and can be used to make payments online. Some accounts require a linked working account to access full payments capability (for example, with another bank in the case of Rabo or ING, or within the same bank by St George/Bank of Melbourne or NAB).
For a larger version, please click here [2].
If interest rate is the key determinant, then RaboDirect, NAB and UBank are the leaders. UBank pays bonus interest of 0.40% if no withdrawal is made in the month. However, if your SMSF has more than two trustees or two directors – you can’t open an account with UBank!
If transactional ability is important, then it is hard to go past the major banks. For SMSFs, Commonwealth Bank offers the Commonwealth Direct Investment Account (CDIA) which can be accessed through NetBank, while Westpac has the DIY Super Account, which incorporates two pre-linked accounts. Although Westpac is now heavily promoting a SMSF solution with BT, the Westpac account is still available.
For the CBA’s CDIA, BOQ’s Super Savings Account and NAB’s SMSF Cash Maximiser, no interest is paid if the balance is under $10,000. However, the advertised rate is paid on the whole balance if it is over $10,000 – so it will usually make sense to keep a minimum balance of at least $10,000 in these accounts.
Term Deposits
Listed below are the latest term deposit rates on offer as at 23 June 17. UBank is offering the best short term rates (2.60% for 3 months and 2.71% for 6 months), while Teachers Mutual Bank has the stand out rates for 1 year and 3 years. RaboDirect is paying 3.30% pa for 5 years.
ING Direct, RaboDirect and UBank also reward loyalty by paying an additional 0.10% pa when an investor rolls over the full amount of a term deposit to a new deposit term.
Rates as at 23 June 2017 for deposits of $50,000 and upwards. Interest paid on maturity, or annually for 3 and 5 year terms. Advance notice (31 day) products selected when offered. Teachers Mutual is “customer” rate.
For a larger version, please click here [3].
Bank Hybrid Securities
Another option for investors wanting to take on more risk is bank hybrid securities. Rates on existing securities have moved higher (prices have dropped) over the last month or so following the sell-off in bank ordinary shares in May and a downgrade by S&P to the stand alone credit profile of the major banks. The latter resulted in an effective one notch downgrade to the rating of their subordinated and hybrid debt instruments. Grossed up yields (the trading margin) to the call date of around 6.0% to 6.5% are available.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.