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Cash Management Trust: A different investment
A Cash Management Trust is just like any managed fund that pools investors’ money, specifically in this case placing money into cash or “cash equivalent” investments such as floating-rate notes (or “income securities”). Cash Management Trusts are managed investments where the primary investment is in cash securities, namely money market securities (short-term securities such as promissory notes and bills of exchange, whereby the terms are one year or less). Cash Management Trusts are low risk and a secure investment, often charging no entry or exit fees, but management fees (usually around 1-2% with lower rate CMTs) can make a big difference in the highest interest rate CMTs.
If a CMT isn’t offering you a significantly higher interest rate than the best high interest savings account, and you therefore won’t see much difference in return over the short to mid-term period – especially if you’re parking funds until a better opportunity comes up – you must ask yourself if it’s worth taking on management fees at all, let alone an increased management fee rate for a higher interest CMT. It’s also worth bearing in mind that your access level may be diminished if you opt for a higher interest rate CMT.
High interest savings accounts and other alternatives
In the savings account stakes, BankWest's TeleNet Saver account offers 7.20%p.a. for 12 months, with zero fees and minimum deposit, even offering a respectable rate of 6.75%p.a. after the 12 months has passed - not to mention the fact that you can also get access to your money 24/7 via online banking. Not quite as high, but still decent for an account offering no significant drawbacks, RaboPlus offers an ongoing rate of 6.90% p.a. with no fees and no minimum balance, and you can stay with your current bank. Meanwhile, AWA Credit Union's cash management account (not to be confused with a Cash Management Trust) offers 7.00%, but only for investments of $100,000+ (so it won’t suit everybody). Keeping in mind the high interest rates some savings accounts are offering, cash management account s have to fight hard to prove their greater value.
If you are going to invest your money in a managed fund or similar account with some degree of risk, it’s hard to justify investing in a fund not offering an average interest rate of at least a few per cent higher than the 6-8% high interest savings accounts pay out. Taking on an investment with any level of risk, no matter how small, for much the same (or even less) return as a high interest savings account – particularly if the investment restricts your access to your funds (such as with term deposits) - is hardly smart business.
Term deposits
Term deposits offer a respectable interest rate of between 7% and 8% commonly (such as with Credit Union Australia’s “7-11 month” term deposit or the Teacher’s Credit Union’s range of accounts from “3-less than 6 months” to “36 months”), but generally will require a minimum investment of at least $5,000, or sometimes even $10,000, so therefore struggle to compete with savings accounts such as BankWest's TeleNet Saver.
Whether you are willing to accept a certain degree of risk or not, a good investment solution can be found that won’t lock your money away from you. It’s naturally the ideal situation to keep your funds at your fingertips, as a better deal could become available at any moment. It’s perhaps fair that if you do decide to opt for one of the higher yielding CMTs you’ll almost certainly be removing the opportunity to access your money at any given time, as your CMT provider will expect some loyalty in return for their higher interest rate. If you have doubts about choosing a CMT over a high interest bank account, be sure to carefully consider the management fee and how it may affect your return, and also the availability of your funds when an option you are more certain about arises. If you have a sizable chunk to invest, one solution is to share your money between institutions and account types. Financial planner Suzanne Haddan of BFG Financial Services says, “I like spreading money. If you had $250,000, I’d divide that among two or three institutions.” (Sydney Morning Herald, 30 January 2008). In such situations, perhaps there is the opportunity to both play it safe and also take a gamble.
