What are Cash Management Trusts?

H. Bliss

Also called cash management funds, or capital management trusts, cash management trusts can be used for various purposes, depending on the organization and geographic location. In the United States, cash management trusts are generally financial accounts turned over to an investment worker for the purpose of cash management. In an educational institution, cash management trusts can be created for the purpose of transferring money to other trusts. A cash management trust is also a relatively low-entry-fee investment vehicle seen mainly in Australia.

Businesswoman talking on a mobile phone
Businesswoman talking on a mobile phone

Cash management means managing the amount of liquid funding an organization has on hand. Usually, funds from cash management trusts are used to invest in diversified portfolios of investments to help increase the value of the trust. In an educational institution, cash management trusts are often created as flex accounts, with funds that can be assigned to different causes or other trusts at the discretion of the school's administration. Cash management trusts are also often used by large businesses and other organizations.

Within a business, a cash management trust is usually arranged by the accounting department. The responsibility for handling the trust usually goes to a trusted investment professional, often one who has handled investments for the organization before. Cash management is used in almost every type of business, because it allows the organization to make the best use of its liquid funds. Besides the investment portion of cash management, other parts of cash management include handling cash transactions, paying bills and preventing errors or theft.

In Australia, a cash management trust is an option for personal investment. These types of funds often have a low initial investment, making them a viable option for an investor with limited starting funds. Cash management trusts in Australia involve contributing money to a fund that is used to invest in securities like stocks and bonds. In some ways, a cash management trust of this type is similar to a savings account, since it requires a minimum balance but still gives the owner access to the funds while earning income from the fund.

A trust is essentially money held in an account for someone else. Usually, trusts are held for limited, pre-determined amounts of time, during which the principal is invested and returns from investment are paid to the beneficiaries of the trust. The trust can be held for a named length of time, or it might end when an event occurs, like the death of the beneficiary. Trusts are most often used to supply long-term investment income to a person, a charitable organization, or a cause.

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