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Six guidelines on how to allocate SMSF cash

Regular readers of Firstlinks may recall I took the unusual step at the start of December 2021 of advising that I was switching some of my SMSF portfolio from equities to cash when I wrote:

“However, while I recommend anyone with a long-term investment horizon should stay substantially invested in equities, I am starting to reduce some equity exposures as I personally believe the market will experience a decent fall sometime in 2022.”

My colleagues at Morningstar had asked me to write about why I expected stockmarkets to fall in 2022. I don't normally make such announcements as I’m not a fan of timing markets. However, the frothy valuations of 2021 were due for a correction, and then conditions worsened with the war in Ukraine and higher-than-expected inflation and interest rates. An advantage of running an SMSF is this flexibility to make changes that suit personal risk appetite, or it can be a curse if the ins and outs are badly timed. In most cases, better to leave it for the long term. As legendary investor Peter Lynch famously said:

Far more money has been lost by investors preparing for corrections, or in trying to anticipate corrections, than has been lost in corrections themselves.

It is also difficult to decide when to restore risk towards equities, and while money is saved by selling before a fall, money is lost in not re-entering before a rise. If the market continues to rally while money sits in cash, the long-term benefits of equity investing may be lost. But unable to resist the timing temptation, the risks to the downside still seem greater than the upside at this stage.

All that involves a decent amount of guesswork, but there is one thing that is a sure-fire way to generate more income. While the money is in cash, make it work harder and earn the higher rates on offer, if other goals are not compromised.

Major banks are enjoying the ‘retail inertia’ of customers staying in lower-earning savings accounts. My SMSF’s transaction account held with CBA is not tracking increases in cash rates, paying 1% or less for under $100,000 and a top rate of 1.85% on high balances versus the current cash rate of 2.6%. On $100,000, earning 1% versus say 3% is a shortfall of $2,000 a year.

The major banks are using the rise in rates to rebuild their net interest margins, and their clients do not give the banks enough incentives to act differently (and I have sat on the Pricing Committees of three Australian banks and lagging rate increases on deposits is an extraordinary source of profits).

Guidelines for investing my cash

It’s overdue for me to find better ways to invest what might loosely be called ‘cash’ as significantly better rates are now available. I have different needs for this money, leaving me to set the following (sometimes conflicting) criteria to drive allocations:

1. Maintain liquidity for opportunistic investments

Regardless of market conditions, investment opportunities arise that may require a quick response. A bond or note issue, such as the recent hybrid offer from CBA, may open and close in a day. Term deposits are a commitment for a given maturity and banks are now pushed by the regulators not to allow easy prepayment, so some level of at-call cash is required.

2. Stagger term maturities

Some bank term deposit rates are now offering 4% to 5%, which while not generating positive real returns with inflation over 7%, at least they generate decent income on government-guaranteed deposits (subject to a maximum of $250,000 per entity per ADI under the Financial Claims Scheme). For example, AMP Bank is at 4.8% and Judo Bank is at 4.9% for five years.

But these long terms reduce flexibility and the threat of inflation and interest rates rising more than expected cannot be ruled out. Staggering maturities leaving some at call in a high-yielding cash account, plus term deposits at 3% for 6 months, 3.9% for 12 months and maybe a little longer term at around 4.5% retains more flexibility. Deposits maturing every six months allows deployment elsewhere if needed.

3. Lock some away at decent rates

The chart below from NAB (as at 25 October 2022) shows how much the bank rate curve has increased over the last 12 months and in the last month, with cash rate futures pricing in 4.25% by September 2023. Amid all the market uncertainty, this week's Budget forecasts a return to lower inflation, down to 3.5% by 2023/2024, and there is an argument that market rates have risen too far. Yes, this is having it both ways (fix some, float some) but locking in some of today's higher rates has merit.

4. Minimise the pain and time involved in paperwork

We all feel differently about the effort of investing. I have a low pain threshold. For example, I started filling out what looked like a decent online application process by Judo Bank. It is, after all, a new online bank without legacy systems. But I became bogged down in identifying myself, the company trustee and the super fund, and for some reason, it requires unique email addresses for the trustee company and the directors. Judo Bank then advised me by email:

“I do thank you in advance for the feedback during our ‘pilot program’. Can you please send through a screen shot of the sections you have mentioned in your email?”

What! Their SMSF application process is a pilot program? Don’t release it to the public, then.

Similarly, I thought I was going well with account opening at Gateway Bank, sending in by email the lengthy application form and various copies of ID, only to receive this reply:

“Please find attached the following documents required to set up a Self-Managed Super Fund with Gateway:
-ID for each signatory (Medicare Card and Driver’s licence/Passport – certification not required; a copy is fine)
-Each signatory must sign the membership form
-The membership application – trust is for the superfund itself

We also need:
-A certificate of registration (showing the ABN)
-1st page of the deed that shows the legal name of the fund and page where it shows the number of beneficiaries and Settlors details if any.
-Table of contents
-The last pages of the deed that show the signatories signatures and the confirmation that it has been witnessed.

If the company is involved as a trustee for the super fund, we would need additional documents for the company:
-The membership application – Company
-A certificate of registration (showing the ABN or ACN) /ASIC certificate.
-All the above documents should to be certified and forwarded to us via email or mail. Unless the members can visit the branch with the original documents, and we can certify it here.”

Really. I had already provided some of this. Life’s too short for all this signing and gathering and certifying, plus who's the Settlor? 

Anyway, after more email exchanges, we all gave up on each other. You might have a difference experience or be happier filling in forms.

I finally set up up a TD using a smoother process with Macquarie Bank. Not sure why they did not require a certified copy of my SMSF’s Trust Deed but they made the application easy.

5. Consider listed cash (money market) ETFs

The range of Exchange-Traded Funds (ETFs) continues to expand and give opportunities across many asset classes which were previously only available in unlisted funds.

There are three ‘cash’ ETFs and many bond, note and private credit funds which are worth considering, but sticking to the cash comparison gives the following choices.

ASX code

Base fee

Buy/sell spread

Current rate

AAA (BetaShares)




BILL (iShares)




ISEC (iShares)




Sources: Issuer websites as at 25 October 2022

AAA is the market leader and by far the biggest and offers the best liquidity and tightest spreads. It has become a popular place to leave cash with better rates than bank deposits. For a relatively quick in and out, it’s the best choice. But it’s also the most expensive on fees, making the others more attractive if money may be left in cash for a while. Note that ISEC carries somewhat more risk than the others as it can hold up to 20% in floating rate notes.

Listed cash funds have become popular globally, as this chart of US retail flows shows (the institutional outflows are due to financing redemptions from other funds). Retail investors are looking for a safer home in the face of equity and bonds funds crashing.

6. Don’t compromise on risk in search of returns

A common investment technique to drive better returns during 2020 and 2021 as cash rates were held at 0.1% was move up the risk curve in search of yield. This may include lower tiers of the bank capital structure, such as subordinated debt or hybrids, or high-yield credit, such as non-investment grade company debt.

While there is some room in portfolios for higher risk, they are not direct substitutes for the security of cash and bank term deposits. For example, this week, CBA issued a new hybrid offering a margin of 2.85% over the Bank Bill Swap Rate (BBSW, the rate that closely follows the Reserve Bank cash rate). At current rates, this pays about 5.8%, and if BBSW goes to the predicated 4.2%, then CBA will pay a healthy 7% plus. Not bad for a bank credit of such quality, and the transaction was swamped and closed in a little over a day. Then Bank of Queensland issued at a better margin, indicated at between 3.4% and 3.6% above BBSW, or over 6% for a solid regional bank. But even when issued by quality banks, hybrids carry some equity-like risks.

The following chart from YieldReport shows how margins on hybrids can widen in times of market distress, driving prices lower for anyone who needs to sell. While the current margin on hybrids across the range of transactions is 2.92%, it rose to a remarkable 7.34% in March 2020 at the height of the pandemic when investors were worried about bank loan quality. Another spike hit in 2016. So while the green line, the 3 month BBSW, has risen handsomely for investors, margins are highly variable and at some time in the life of today’s new hybrids, there may be better spreads available.

For those brave enough to buy in March 2020 at a margin of 7.34%, if BBSW goes to 4.2%, that’s 11.5% on a quality bank name.

So what did I do?

I am not claiming I have surveyed every bank, security and opportunity, and I’m willing to forego returns for ease of execution. The following identifies specific investments I made as a guide to the diversity available but it is not exhaustive.

  • Switch some cash to a High Interest Cash account with nabtrade paying 2.75% on the full balance. My SMSF already holds an account with nabtrade, so no account opening was necessary, just a funds transfer.
  • Open a new term deposit with Macquarie Bank, 12 months paying 3.9%. As above, I found the application process easier than with others.
  • Invest in a couple of listed cash ETFs, BILL and ISEC, where the fees are lower than the market leader, AAA. Unlike cash bank accounts and term deposits, however, there are costs of brokerage and crossing the spread.
  • Invest in some hybrids, accepting that these are not like-for-like risk versus cash, but a floating rate exposure in a rising rate environment has a place in my portfolio. Knowing that the CBA issue will face heavy scale back but they are repaying a large investment I have in the existing CBAPD, I bought two hybrids on market, Macquarie’s MQGPF set to yield about 8% to maturity and ANZ’s ANZPI at about 7.4%. There are also hybrid ETFs available which leave selection to experts for a fee. I know that hybrids in Australia are paying lower rates than banks in offshore markets. I am willing to accept this cost as I do not want more currency exposure and I am more confident about Australian banks than European names. I already hold an investment in the VanEck Bentham ETF (ASX:CGAP) which holds foreign bank capital instruments.
  • Plus a couple of modest equity investments in listed companies that I have wanted to own for many years and where the price has fallen to what seems an attractive level.

That will suffice for now with some cash left in my CBA transaction account, provided they fix the rate paid.

I welcome feedback and suggestions on how to manage cash if others have seen better opportunities.


Graham Hand is Editor-at-Large for Firstlinks. This article is general information and does not consider the circumstances of any other investor. These investments may not suit other people and financial advice should be obtained by each investor.


February 09, 2023

I spend quite a bit of time pondering this issue. I am fortunate enough to get 2.85 % out of ANZ VS as my accounts are done by ESUPER fund and that is their designated cash account. That being said it still seems skinny. I have considered the ETF Cash vehicles but the brokerage in and out rules them out for me as a vehicle where cash can be parked to deploy in the market ( at time of writing distribution rate was about 3.2% and you still have to cross spreads to get in an out which lowers your yield)... One of the things I have tried to some success is doing a 3 month term deposit every month of portions of my fund. Macquarie at present offer 3.35% for 3 months..As I am retired and not drawing a govt pension I also have moved super cash outside of super and have approximately half my portfolio allocation of cash in ING and AMP both offering over 4% at present.

November 24, 2022

Laugh or cry?
Great article, Graham -thank you
CommSec/CDIA recently 10 Nov announced increased interest rates on CDIA accounts. But lots of fine print …. You have to RING them to ask what rate you are getting or to obtain the still measly SMSF rate of 2% (otherwise 0.7% and up on a sliding scale). And now the announcement has disappeared from the website.

So much for competition and innovation from those whom a certain former Treasurer characterised as overpaid utility managers with govt guarantees (my words) … but a tremendous incentive to get funds out of CDIA or even CommSec

November 02, 2022

I would really enjoy/benefit from a general discussion upon the investment arena with someone/some group (1-3 people) who have a broad knowledge of the same.
I consider myself to be a experienced investor with limited knowledge in the more esoteric/higher risk areas. There is a enormous amount of information “out there” but no real discussion of the advantages / disadvantages / interactions of decisions that could be made.
I don’t believe an investment adviser nor broker would be willing to spend the time discussing the above without some sort of remuneration let alone the ever present motive tilt. I’m not looking for investment advice.
Your article last week on the allocation of SMSF was excellent and your personal input made it more tangible and representative of the sort of decisions upon which a discussion could proceed. Where do I find such a forum? I’m (68yo) a member of the AIA and have been to their meetings but leave having been lectured to but not really sure how that information could be incorporated into my situation and if it were whether it really made sense. Warren Buffett has Charlie Munger. Where does Joe find a ? to “chew the fat”?

Graham Hand
November 03, 2022

Hi John

Thanks for your feedback. I know what you mean about the dissatisfaction of being ‘lectured to’. You want a more intimate and personal experience.

The only forums I know which are similar to your needs are the small groups run by the Australian Shareholders Association (ASA). They have local member meetings, sometimes fewer than 20 people, which allows a level of more personal discussion. I have presented at many of them.

If you want a smaller group, say 3 or less, you could join one of these groups and suggest they host such a session, where perhaps 20 people work in six groups for an hour to own experiences.

You are correct that it would be difficult for an commercial group to arrange this so it needs grass roots participation and organisation.

Sandra Acheson
November 12, 2022

May I suggest the Association of Independent Retirees. Depending where you live, meetings are held monthly, in Noosa we have 2 meetings per month mostly with a guest speaker; a general meeting and an investment discussion group. Questions can be asked and discussions follow. In addition you will meet like minded people who are often happy to discuss their own financial situations. We have a number of prominent speakers. Noel Whittaker and Geoff Wilson make themselves available to speak when in Noosa.

October 31, 2022

What a great and practical article Graham. Thank you!
I recently had to transfer all my UBank SMSF accounts and TDs out and dumped them in CBA CDIA which as you say, has an appalling rate at present of 1.80% >$10K. I was not convinced that the slightly better NAB CMA introductory rate for UBank SMSF customers of 2.55% would continue . (Outside of Super, UBank are still offering easy and high interest cash accounts).
Also as you say, the Macquarie rates for SMSF, which are not through advisors, are poor.

I wish I could find a simple option. The application process as you illustrate, is appallingly complex and inconsistent amongst institutions. And with recent cyber attacks, the idea of so much ID information floating around and being retained, is also frightening.

On a separate issue, many advisors and articles talk of a percentage of investments in cash. For a retiree with a larger SMSF it is the quantum of cash in $ which really matters; maybe having 3-5 years of pension/living expenses in a secure liquid cash investment and being 'fully invested' with the rest.

October 30, 2022

Graeme - I am very new to investment but the main message I see from your article is to lay low at the moment and seek some cover in a high interest term deposit, I appreciate the other advice but without a broker/financial adviser it is very difficult to implement the trading options. How can a naive investor do so?

Graham Hand
October 30, 2022

Hi Geoff, Firstlinks is not authorised to offer personal financial advice and in any case I could not offer advice without knowing your personal circumstances. G

October 30, 2022

Understand. But even if I engage an adviser how do I know whether the advice is suited to the current environment?

SMSF Trustee
October 30, 2022

if you engage an adviser and tell them very clearly why you're engaging them, including that you want to know what to do with some short term funds (if that's what you want - your comment is not really clear on this sort of thing), then that's what they'll advise you on. They'll provide a written document feeding back to you that this is the mandate you're giving them and they'll explain how their advice meets your requirements.
Just go and do it - you seem like you could use that sort of professional help.

November 02, 2022

Thanks SMSF trustee - one final thing - why would I invest my money through an advisor rather than an industry fund? Is it more likely that my funds could disappear or be rotted by an advisor than an industry fund?

SMSF Trustee
November 02, 2022

Geoff, the answer is no. Many advisers will actually recommend an industry fund or if not they'll recommend a mix of other reputable fund managers. They don't take your money, they advise you what to do with it. If they happen to be one of the exceptionally rare examples like Melissa Caddick then learn from that experience - don't take advice that doesn't focus on standard investments like reputable managed funds , direct ASX listed shares, etc.

October 30, 2022

Thank you very much, Graham, for your very informative article. I was not previously aware of the listed cash ETFs, but will now investigate. Our SMSF's cash transaction account is with ANZ, for use with what used to be Etrade as the broker and for the moment known as ANZ Share Investing. The ANZ Cash Investment Account pays an amazing 0% pa (!!!) still on balances below $250,000 and with its highest interest rate of 0.05% pa (!!!) for balances above $1 million. Years ago it paid a decent sort of interest rate such that you didn't mind leaving spare cash in it, but not any more...

Barry P
October 29, 2022

Hi Graham, I sympathise with you and worry as a shareholder. How much better could they be if they pulled their fingers out. Not quite in the same league, but I have been battling CBA for more than 2 years to remove a message "We are unable to load some of your account or balance info right now" from my internet banking home page.

mike p
October 29, 2022

Hi Graham H,
I am interested in new hybrids, where there is a margin above BBSW ? How do you find the institutions which are offering to market ( I mean the new ones, like 'IPO" ). I manage my SMSF. Cheers.

Graham Hand
October 29, 2022

Hi Mike P, if you go to our Education Centre on the blue menu bar at the top of our home page, the third tab is called 'ASX Listed Bonds and Hybrids from nabtrade'. Link is: That shows the current ASX-listed hybrids. Go to the third page and you can see the current trading margins listed. You do not need to buy in IPO, you can select from any of these and buy on-market. On the 'new ones', you will need to qualify as a 'wholesale' or 'sophisticated' client with a broker who distributes new hybrids, but even good clients are subject to heavy scale back. Qualification depends on assets and income. If you cannot qualify, no big deal, just find attractive margins in existing issues and buy like any share. But you need to make your own decisions, I'm not advising you. 

Graham Hand
October 29, 2022

Thanks David C, but when you say "However the bank hybrids provide franking credits which is a useful bonus that no-one appears to have mentioned." Not so, it is not a 'useful bonus'. It is included in the margin quoted, it's not additional. That is, the distribution rate is adjusted down to take account of the franking credits to arrive at the cash distribution rate. For example, what looks like a 4% payment is 2.8% plus franking, it's not an additional bonus.

Cash distribution rate
= equivalent unfranked distribution rate × (1 – tax rate)
= 4.00% × (1.00 – 0.30) (assuming a corporate tax rate of 30%)
= 2.80% per annum

David C
October 30, 2022

Thank you Graham - I stand corrected! They don't appear quite so attractive then.

October 29, 2022

Graham, I use bank's on-line High Interest accounts to park cash, particularly Macquarie, currently paying 3.2% up to $250,000, easy to get money in and out, and the rate has been rising with each RBA increase. Similarly with Ubank (3.35%) which I have been using for years.
I concur with AlanB's comment about access to hybrids - I guess we'll have to wait for market drops in prices as you describe.

October 29, 2022

Neither mentioned Macquarie or UBank are unavailable for Super funds, only personal accounts.

Graham Hand
October 29, 2022

Hi Keith and RB, I covered this last week, but Ubank is no longer offering accounts to SMSFs having become a 'personal' bank (existing SMSFs are being informed over coming months and told to transfer to a NAB account with worse rates - good luck with that) , while Macquarie does offer SMSF TD accounts but for some unknown reason, not the special savings rate offered on personal savings. SMSFs miss out again. Macquarie also has a weird procedure which requires a complete new application process when lodging another TD for an existing investor, rather than just a 'Open another TD' box. What's wrong with the people who design this stuff?

October 30, 2022

ubank dont do smsf TD now

October 26, 2022

The TD rates offered by ADIs is directly proportional to the difficulty of account application.

It is possible to make once a digital package of entity identification to which is combined with an ADI's idiosyncratic application form then send the combined package securely to the ADI.

Make once, use many.

ADI's could but do not offer a generic application form. Likely they want applicant to perspire.

October 26, 2022

Maybe not suitable for everyone's circumstances but I park my "cash" in my mortgage offset account earning the equivalent of 5.25% interest income after-tax. At call liquidity (awaiting for the next Equities run-up opportunity, which will generate a higher return than the opportunity cost of sitting on that "cash"), with the best possible interest income rate you can get in Australia.

October 26, 2022

It should be mentioned that the new bank hybrid Graham refers to with a 2.85% margin (CBAPL) was only open to 'Australian Resident Wholesale clients (Sophisticated or Professional)'. Not so long ago retail investors like us would be offered these bank hybrids if we were customers or existing share and hybrid investors at roll-over. Now we have to buy them on market and usually for more than the $100 issue price, giving a windfall gain to 'Australian Resident Wholesale clients (Sophisticated or Professional)' who somehow convinced the banking regulatory authorities to give them this nice lurk. No wonder the "transaction was swamped and closed in a little over a day."

October 26, 2022

An alternative ?
Issuer Commonwealth Bank of Australia
Issuer Rating Issuer rating: AA-/Stable (S&P) Aa3/Stable (Moody’s) A+/ Stable (Fitch)
Expected Issue Rating Expected issue rating: BBB+ (S&P) Baa1 (Moody’s) A- (Fitch)
Currency AUD
Ranking Subordinated unsecured Tier 2 notes
First Call Date 5 years
Maturity 10 years
Coupon Type Fixed to 5y Floating
Expected Coupon [6.91]% 3mBBSW+[275]bps
Take your pick,fixed or floating

October 26, 2022

An Excellent View.
For our SMSF we invest a % in a.Cash.
However we define Cash as Money in hand, Transaction account is the only one which fits our definition of Cash.
All other products including TD has up to three days lag .TD requires 31 days if the Term is not completed.
We have always invested in Bank Hybrids and even now with DDO in place we are continuing investing in Hybrids.
We find that Cash ETF and Managed fund not suitable as the fees are higher.
ETF equities ASX and Global make part of our SMSF

Rob Smith
October 26, 2022

Great article Thank you. I have basically done exactly what you have suggested with the exception of the cash ETFs . I particularly like the practical advise you have provided which we seldom get from commentators.

Fred Nurk
October 26, 2022

Great articile. Macquarie wanted my trust deed. AMP super saver 3.6% said they approve my smsf application despite web site. Yet to be proven.

Ron Lewis
October 26, 2022

Hi Graham. I agree with you regarding the paperwork & time required in opening new SMSF in financial institutions.
I went through the same exercise some months ago. It is not worth the effort & time. I did the same as you.
I invested with the institutions with slightly less reward but sometime saved days of work.Regards, Ron Lewis.

keith ives
October 26, 2022

i have all my cash held in listed PL8 which pays monthly fully franked dividend of 0.055 and the last year ranged from 0.05- to 0.055pm.With my SMSF in Pension mode the franking credit is a little bonus but adds up over the year, Cheers Keith

SMSF Trustee
October 26, 2022

keith ives, in which case it's not cash. You can't get franking credits in a cash investment - company profits have to be have been paid first, making it an equity investment.

David C
October 29, 2022

However the bank hybrids provide franking credits which is a useful bonus that no-one appears to have mentioned.

keith ives
October 29, 2022

Agreed,It is an equity investment but as good as holding in cash,Share price not subject to violent fluctuations
and excellent liquidity if you want to access cash,

SMSF Trustee
October 29, 2022

But Keith, it is NOT cash. It's irresponsible to recommend it in the context of a discussion about cash investments. And if you were an adviser then saying that it's "as good as holding cash" would wind you up in serious trouble.

Graham Hand
October 29, 2022

Keith, let's rule out this claim that holding PL8, or any equity fund, is like holding cash. One of the roles of cash is to protect a portfolio in a heavy market downturn. Not even Don Hamson would claim his PL8 will do that. In March 2020 when the pandemic hit, the NTA of PL8 fell from $1.14 to 83 cents, as should be expected.

October 26, 2022

Graham, The 6 guidelines you have mentioned I would concur with. I would agree that Macquarie Bank is easier to do business with in terms of account opening. If you are an ETF fan then adding QPON as an extra alternate cash management option is worth considering (somewhere between AAA & HBRD). I am not a fan of any of the Big 4 and in the final stages of finally exiting them and have over the last 10+ years found better customer engagement and deliverables from other credible banks (eg HSBC & Macquarie). Perhaps a significant loss of deposits might encourage the Big 4 to reward deposits more competitively, though I seriously doubt I would consider any of them for future banking or investment requirements.

Ian Nettle
October 29, 2022

Based on their products it is hard understand why they are the big four. Customer inertia? Anyway that was my opinion until I opened a bank account in Italy. They levy a fee for doing anything and everything so maybe the big four not so bad after all? With HSBC and Macquarie I concur with you John, they are great to deal with and I like their products as well. Proves you can be big and good at the same time.

October 26, 2022

Interesting that you raise the Bentham ETF, as they’ve just launched a new managed fund that’s invested in AAA/AA CLOs and RMBS. 5% running yield iirc. Loans and high yield I can take or leave, but I feel like these kinds of (AAA rated) securities have a place, even if they are more exotic.


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