Are CMTs right for you?

Australian banks are ramping up efforts to promote cash management trusts, but investors should be sure to read the fine print.

PORTFOLIO POINT: Cash management trusts offer strong returns, but there are costs and conditions that might not suit some investors.

Record low interest rates and revived optimism in equity markets have looking once again at cash management trusts (CMTs) and their higher returns on at-call accounts than traditional bank offerings.

Australia’s CMT sector held more than $45 billion in March (the latest available total) and the figure is growing. The big players in the sector are Macquarie Bank, Goldman Sachs JB Were, Commonwealth Bank, AXA and BT.

In recent years their dominance has been tested by even better returns from online-only savings accounts offered by some of the biggest names in global finance, including HSBC and ING.

The government guarantee on Australian bank deposits also dented CMTs’ popularity. As confusion over just what was covered under the guarantee reined, many opted for the simplicity of the online savings account (see Bruce Brammall’s feature, CMTs lose some gloss).

So should investors switch their money from the bank? Not necessarily. Harry Senlitonga, a senior analyst at consumer finance research house Cannex, says: “A cash management trust is not for everyone. It’s more suited to highly sophisticated investors.

CMTs offer an “investment hub” for investors, holding money in cash and available instantly to cover share purchases.

hHow the CMTs compare
Institution	Account name	Nominal rate
Adelaide Managed Funds	Cash Management Trust	2.50%
Asgard St George	eCASH	3.85%
AXA/AC&L LIFE	Cash Management Trust	1.96%
BT Funds Management	BT Cash Management Trust	2.38%
BWA Managed Investments	Cash Management Trust	2.60%
Colonial First State	Cash Management Trust	2.01%
Commonwealth Fin Service	Cash Management Trust	3.13%
Goldman Sachs JB Were	Cash Trust	2.41%
Macquarie Investment Mgt	Cash Management Trust	1.88%
MLC Life	Cash Management Trust	1.93%
National Aust Trustees	At Call Common Fund A1	2.45%
Ord Minnett	Cash Management Trust	2.14%
Trust	Cash Management Fund	2.15%
UBS	Cash Management Trust	2.06%
Westpac CMT	Cash Management Trust	2.25%

The most popular CMTs offer 2.5–3% interest, well above the usual 1–2% from standard transaction accounts, but well below the 5.1% offered by the online-only Ubank, backed the National Australia Bank.

nThe online offerings
Institution	Account name	Introductory rate	Base rate
U Bank	U Saver	5.21%	5.21%
Members Equity	Online Savings Account	4%	4%
Rabo Bank	Rabo Plus Savings	4%	4%
ANZ	Online Saver	4.25%	3.25%
ING Direct	Savings Maximiser	4.50%	3.50%
Suncorp	Everyday Savings	3.50%	3.50%
BCU	Direct Saver Online	3.25%	3.25%
Bank West	Smart E Saver	4.50%	3%
AMP	Easy Saver	4.35%	2.80%
NAB	iSaver	4.40%	2.75%

The financial services comparison website Cannex says Asgard St George delivers better rates than most, offering 3.85% in its SMSF-ready cash management account eCASH.

The good rates can come at a cost. CMTs often counterbalance strong rates with less flexibility or higher fees. Fees typically range from between 0.3% to 1.2% of account balances and even small differences in fees can affect long-term returns.

Among the major players, BT Investment and Goldman Sachs JB Were charge the lowest fees, at 0.94% and 0.95% pa respectively. Macquarie and Colonial First State both charge 1.1% and Ord Minnett 1.16%. CMTs require a minimum initial deposit – as little as $5000 but usually about 10,000.

Other hidden costs include entry and exit fees, transaction and transfer charges, dishonour charges, and fees for additional deposit books or cheque books.

CMTs remain a useful option for many investors, particularly as a “hub” for diversified online management of their finances. Nevertheless, the options for cash savers have widened substantially since Macquarie Bank offered the first CMT in the 1990s; simple online cash accounts from big names such as HSBC or ING Direct now compete with the big names in the CMT market.

HSBC is offering 3.5% and ING Direct has an introductory offer of 4.5% without the red tape and documentation associated with many CMT funds. You may need to read the fine print closely, however. The initial “honeymoon” rate may only last so long.

Where do CMTs invest? They tend to hold low-risk investments, mainly in government or bank-issued securities, and CMTs themselves are not individually covered by the government guarantee, their investments will be.

Some trusts, however, are exposed to derivative instruments, including the BT Cash Management Trust and AXA’s Wholesale Cash Management Trust Fund. Cannex’s Harry Senlitonga says this might only be a concern for the more risk-averse investors. Details of where CMTs direct their investments are spelt out in their product disclosure statements.