If you enjoy running around from bank to bank hunting for the best term deposit rates, filling out a multitude of application forms and completing repetitive 100 point identification checks for your SMSF then stop reading.
However, if you want a solution where you can complete a single application form which gives you access to more than 25 banks, building societies and credit unions with competitive interest rates including daily specials – then read on!
As mentioned in our previous article Reduction in the Government Deposit Guarantee and your SMSF, from the 1st of February 2012, the Australian Government guarantee on deposits reduces from $1 million to $250,000 per customer per institution. For a lot of our SMSF clients this means instead of having a single deposit with one bank, to still be eligible for the guarantee you will need to split your monies into separate deposits with different banks – not an ideal scenario if you are trying to keep the management of your SMSF ‘simple’.
How does it work?
The money market service moves funds between financial institutions on your behalf via a central cash movement account (provided by Queensland based institution DDH Graham). All term deposit investments including the DDH account are held in the name of your SMSF and you receive a confirmation for each investment directly from the institution providing the term deposit. After receiving instructions from your authorised intermediary (more about this later), funds are placed with your chosen institution to gain the best interest rate. When an investment reaches maturity, it can be reinvested without the need to complete further application forms with any one of the available institutions.
Alternatively funds can be redeemed and passed back to your pre-nominated SMSF cheque / savings account.
How do I know my money is safe?
The investment is ALWAYS in the name of your SMSF. Ownership of the funds is always with you and cannot be transferred to anyone else. All the banks and credit unions available via the money market service are covered by the Government Guarantee Scheme up to $250,000 from 1 February 2012.
Why only a single application form?
The initial money market application form is the only form you are required to sign. This single application form provides access to the rates of all the institutions the money market service deals with and gives authority to open investments with those institutions as if you dealt with them directly. Your identification is collected in this initial application and copies are provided to each institution as required.
What happens at maturity?
You intermediary / adviser will be contacted a week prior to any maturing investment. The money market service will either reinvest the funds in the the institution of your choice, or redeem the funds to your SMSF account based on the instruction received from your adviser or intermediary. The funds are never automatically rolled over therefore there is no risk of the investment rolling from a high to low interest rate with the same institution. If no instructions are received, funds are returned to your cash movement account to await further instructions.
How much does the money market service cost?
Superfund Partners and Quill Group Financial Planners do not charge a fee for access to the money market service, nor do we receive any commission. It is offered purely as a complimentary service to our clients.
The company providing the money market service takes a 0.10% fee off the top of the rates on all deposits to cover the cost of providing their service. For example if an institution had a deposit rate available of 6.11%, the net interest payable to your SMSF as the end investor would be 6.01% – a difference in the interest of $125 if $250,000 was invested for 6 months.
The fee is offset by the fact that the money market service regularly obtains access to special rates over and above the rate available if you went to that bank or institution directly – not to mention the convenience and time saving the service offers.
What you need to know:
- One application is completed. This application covers the following:
- Establishes a DDH Graham account which acts as a ‘cash movement account’ between your existing SMSF bank account and the various banks / institutions available
- Provides authority for the money market operator to transact and invest the funds on your behalf
- Authorises Quill Group Financial Planning to act as your adviser / intermediary to give instructions to the money market operator on your behalf
- Provides copies of your identification documents (drivers licence + Medicare card for example) which are made available to financial institutions for future applications on your behalf
- The fee to use the money market service is 0.10%. The interest rate you receive is net of this amount
- Superfund Partners or Quill Group Financial Planning do not receive any fees or commissions for this service – it is complimentary to our SMSF clients
- The deposits / investments will always be in the name of the investor – it is not a custodian service
- Sometimes the rates available via the money market service will be higher than what is available through a particular bank, building society or credit union directly
- Sometimes individual banks, building societies or credit unions will offer special rates (i.e. sandwich board rates) that are higher than what is available via the money market service
- Quill Group Financial Planning will always endeavour to obtain the best possible interest rate available for you, however there will times where you will see a higher advertised interest rate – please respect the fact that we are are offering this service as complimentary to our clients
- The money market service provide duplicate copies of deposit confirmations to Superfund Partners or Quill Group Financial Planning in addition to an electronic transaction feed. This greatly improves the administration efficiency of preparing your SMSF accounts as currently term deposit information is the ‘missing piece of the puzzle’ as Superfund Partners can generally receive all other information from banks, brokers and wrap account providers
- You will have an login to view your current term deposits and interest rates available via the money market service, but all instruction regarding investments must go through Quill Group Financial Planning as the nominated intermediary
Ready to go?
If you want more information about the money market service, please click here and provide us with some more information about you and your SMSF, and we can send you an application form.