Cash in a super

For those who manage their own superannuation a host of new products will make the DIY environment easier and more convenient.

For those who manage their own superannuation a host of new products will make the DIY environment easier and more convenient.

Self-managed super funds are awash with cash and there is no shortage of products being developed to help them manage that cash better.

Recent additions are a bank account designed specifically for self-managed funds and a world-first, high-interest cash exchange-traded fund (ETF).

While most self-managed funds operate ordinary bank accounts, Commonwealth Bank has launched its DIY Super Cash Investment Account, which combines an everyday transaction account with an investment cash account.

Share trades through CommSec can be settled directly into the account products such as term deposits can be linked to it and cash can be accessed through branches, phone and online via NetBank. Commonwealth says there are no account or withdrawal fees (though access fees may apply) and the account currently pays a 4.25 per cent interest rate on balances over $10,000 - though it pays a rather puny 0.01 per cent on the first $9999.

While other banks have similar products, Commonwealth says its offering makes it even easier for investors to manage their DIY super.

BetaShares also has self-managed funds firmly in its sights with the launch of its Australian High Interest Cash ETF this week.

The head of investment strategy for BetaShares, Drew Corbett, says self-managed funds can use the product as part of their cash or fixed-interest allocation and earn a higher rate of interest than the 30-day bank bill swap rate after fees and expenses with monthly income payments.

The ETF, which will be listed on the Australian Stock Exchange under new rules allowing the listing of fixed-income funds, gives investors access to a direct deposit with Westpac.

Corbett says this is a world first. High-interest cash ETFs overseas are predominantly money market funds, which invest in products such as overnight cash and bank bills. However, this ETF is backed by a deposit with Westpac at a negotiated rate. While the rate will vary, Corbett says it is currently about 5.2 per cent, or 5.02 per cent after the 0.18 per cent management fee is deducted.

Unlike online accounts or term deposits, investors will have to buy and sell units in the ETF through a broker (and pay brokerage) but. even then, Corbett says the yield should be better than that offered on most online savings accounts.

"We realised a lot of people were concerned that term-deposit rates were coming down but they still wanted capital preservation," he says.

While the price of the ETF will vary, Corbett says market makers will ensure it trades in a "very tight band" around its underlying value. As interest is earned each day on the deposit, the value of the ETF will rise, which means investors can "sell" their cash at any time without penalty.

The value of the ETF should fall back to face value when the monthly interest payment is made.

Unlike fixed-interest products, Corbett says the ETF won't fall in value if interest rates fall (though the rate paid will obviously go down).

Rival ETF providers, iShares and Russell Investments, are also expanding into fixed-interest ETFs (see page 8).

iShares is launching three funds tracking key UBS fixed-interest indices - a UBS Composite Bond Index Fund, a UBS Treasury Index Fund and a UBS Government Inflation Index Fund.

Russell is launching government, semi-government and corporate bond ETFs. These funds are based on the DBIQ indices, which Russell says were customised specifically to meet the different needs of Australian investors.