If you’ve reached a stage where a simple transaction or savings account is no longer the best way to manage your money, or if you’re want to simplify managing your savings and investments, it could be worth opening a cash management account. Most prominent financial institutions in Australia offer cash management accounts, but features can vary across institutions.
How does a cash management account work?
A cash management account is essentially a savings account or bank account, although some financial institutions classify them as investment accounts. These accounts tend to offer higher interest than standard bank accounts which usually offer no interest, but less interest than a high interest savings account.
As an account holder, you'll have easy access to funds in your account, and some accounts can be linked to online trading platforms so you can easily manage your investments.
Some financial institutions allow customers to open cash management accounts using Self Managed Super Funds (SMSFs), and trusts can open such accounts as well. You may need to meet certain requirements in order to open an account, such as a minimum opening balance and ongoing balance requirements.
What can you use a cash management account for?
A cash management account is ideal is you want to keep your investment cash flow separate from your personal banking. For example, you can use the account to receive your rental income from an investment property or dividends from shares. It can also be used as a hub for your self managed super fund where you make investments for the fund and receive income for the fund.
How do I compare cash management accounts?
While some of the features are essentially the same, some others are not, so pay attention to the following if you plan to open a cash management account.
- Interest rate. Some cash management accounts offer the same interest rate no matter how much your account balance is, while others offer tiered interest rates. With accounts that follow tiered interest rates, balances higher than $500,000 tend to earn the highest rates.
- Access to funds. Depending on the account you choose, you can access money in your account through ATMs, EFTPOS, Internet banking, phone banking, cheque books, branch banking, and even BPAY.
- Online trading. If you trade shares online, or if you plan to in the future, consider opening a cash management account that you can link to an online trading account.
- Fees and charges. Cash management accounts don't usually attract ongoing account keeping or management fees. Some might not charge any transaction fees, and some others might offer a limited number of free transactions per month. You might have to pay fees for using cheques and for staff-assisted transactions. Online and phone transactions are generally free.
Pros and cons of a cash management account
- High interest rate. When compared to a standard bank account you can expect a cash management account to offer a better interest rate.
- Easy access to funds. With your cash management account you can access funds at ATMs, via online banking, and also use your money to pay bills via BPAY.
- Ideal for SMSFs. A cash management account gives you easy means to simplify your tax returns, super fund accounting and long term record keeping, given that all related transactions appear on a single statement.
- Opening and ongoing balance requirements. Cash management accounts normally have minimum account opening balance requirements, which can be in between $5,000 and $10,000. While some have ongoing minimum balance requirements as well, some others don’t.
- Opportunity cost. If your risk profile and goals suit a more aggressive investment strategy, you could get better returns investing your money in a different asset class rather than stashing it in a cash management account.
- Share trading cash account. Some share trading platforms will require you to also have a cash management account offered by them.
Frequently asked questions
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