Government bonds produced good returns last year, but at the current starting position of lower rates, the cost of defensiveness is probably a limited payoff.
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The wholesale market, accessible for retail investors via managed funds (including ETFs and LICs) offers better cash yields than bank term deposits but at a higher risk. This risk can be managed via a diversified portfolio .
Leaving a term deposit to rollover automatically at the end of each term will almost certainly guarantee a worse return than if you read the rollover letter and do some research instead.
Following the recent cash rate cut, it seemed unusual for banks to then increase their term deposit rates, while only passing on a fraction of the cut to borrowers. What’s behind this change in bank strategy?
Keeping superannuation savings in term deposits will protect the capital but doesn’t optimise the retirement outcome. There are many alternatives that should provide higher sustainable income over the long term.
A recent change to banking regulation has significant implications for term deposits. With 31+ day break or notice clauses becoming more common, a large difference in deposit rates is expected.
Despite rates of only 2-3%, term deposits and cash accounts are still the mainstay of most personal investment and SMSF portfolios. Next time you receive that renewal letter, stop and think about your options.
Both term deposits and managed bond funds can play a role for investors who want relative capital security and reliability of income. Despite their obvious differences, they are really apples and apples.
* Better and cheaper availability of wholesale funding for major banks will reduce retail term deposits rates, as CBA takes its foot off the gas.
Google searches for ‘term deposits’ peaked in late 2009, and since 2011 have been in steady decline. At the beginning of 2013, the searches for term deposits are at their lowest for five years.