SMSF Investing Education & Strategies

The SMSF cash or bank account

The cash account of your SMSF is essentially the hub of your Fund, where all contributions and investment income are paid into, and all benefit payments & expenses are paid from. And most importantly, it keeps the cash in your SMSF separate from your own personal cash, which is a key issue for SMSF trustees.

You effectively have two main choices for the cash of your SMSF:

1. A regular bank account

This is fairly self explanatory and we will assume you know what a bank account is !
The main advantage of using a regular bank account as your SMSF cash account is direct branch access, the wide array of payment options, such as checkbooks, Bpay, direct debit, and the use of a debit (not credit) visa or mastercard for online expenses such as an investment newsletters etc.

The main downside of a regular bank account is the very low (or nil) interest you'll receive on your cash. However, increasingly available are online savings accounts that 'attach' to the regular account and pay much higher interest. You just need to go online to sweep money from one to the other when you need it. Note that not all online saver accounts are available to SMSFs, or corporate trustees of SMSFs. You'll need to ask your bank directly.

2. A Cash Management Trust

A Cash Management Trust (or CMT) is a form of managed fund, but with some bank account like functionality. A CMT pools investors funds together and invests this money in the wholesale short term money market to achieve higher wholesale interest rates, which is its main advantage over regular bank accounts. The types of investments that CMTs will invest into include bank bills, wholesale cash, and treasury notes. To compete with regular bank accounts, many CMT's also have a range of payment options such as checkbooks, BPay, direct debit etc, however few (if any) that we are aware of offer debit visa or mastercards for online expenses, which is probably their key drawback at this stage.

**Note on the Gov't guarantee : Due to the turmoil and uncertainty of global financial markets in 2008, the federal Government decided to implement a 3 yr guarantee of the deposits and wholesale funding of Australian deposit-taking institutions.  This guarantee applies to all authorised deposit-taking institutions (‘ADIs’) incorporated in Australia – that is Australian-owned banks, Australian ADI subsidiaries of foreign banks, credit unions and building societies; and foreign branches of eligible ADIs but not their foreign subsidiaries. The guarantees will apply to deposits held by all types of legal entities in Australia and do not distinguish between deposits held by retail clients and those held by wholesale clients, but does not apply to deposits held in branches of foreign banks in Australia.

The key issue for SMSF trustees is that the guarantees do not seem to be available in relation to cash management trusts whether operated by an ADI or not. However, many CMT providers are putting our statements to the effect that "all underlying investments in the CMT are covered by the guarantee". If you are using a CMT and the bank guarantee is an issue for you, check with your CMT provider to see where they stand.