With the RBA dropping the cash rate last week to an incredible 1.5%, it is even more important SMSF trustees ensure that they are getting the best deal on their cash deposits. Every fund should have cash on hand to meet its immediate liabilities, and most funds will hold additional cash or term deposits. In some cases, term deposit investments will be considered to be part of the fixed interest asset category.
Where do you go to find that additional 0.25%? Well, be prepared to shop around, because the rates vary considerably between the financial institutions. Changing banks can sometimes be quite difficult and time consuming, so there is a cost to change. 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.
Here is our latest review of the products and rates offered by the Banks (cash accounts and term deposits).
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).
[1]Rates as at 8 August, 2016
If the interest rate is the key determinant, then RaboDirect 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 2 trustees or 2 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.
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 8 August 2016. UBank is offering 3.01% pa for 3 and 6 months, while ING is paying 3.05% for 12 months and RaboDirect 3.30% pa for 5 years.
Accompanying its announcement to only pass on part of the RBA’s cut to its home loan rates, Commonwealth Bank said that it will boost the rate it pays on 1-year, 2-year and 3-year term deposits from 19 August to 3.00% pa, 3.10% pa and 3.20% pa respectively. As it is the market leader, you would expect most other banks will follow suit in due course, so expect rates for longer term deposits to move higher.
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.
[2]
Rates as at 8 August, 2016 for deposits of $50,000 and upwards. Interest paid on maturity, or annually for 5-year term. Advance notice (31 day) products selected when offered.
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.