SMSF trustees are increasingly turning to term deposits to maximise their returns on cash holdings, taking advantage of interest rates that remain very attractive despite the falling cash rate.
Tim Hewson, Investments Manager, RaboDirect Australia and New Zealand said:
“Term deposits are increasingly becoming a key part of SMSF strategies. This is largely due to the continuing uncertainty in the global economy and the local share market. In such an environment, the cash hub in SMSFs has become of significantly greater importance to trustees who search for certainty, stability and safety.
“Clearly for trustees nearing retirement, liquidity is key and for those investors the length of the term is very important.
“Historically, we have found that term deposits appeal to an older, more risk averse customer. Interestingly, we are now seeing younger people turning to term deposits due to the certainty of returns. With continuing speculation that the RBA will cut interest rates again before the year’s end, locking money away in a market leading term deposit now can help reduce the impact such a cut will have on cash savings.
“As well as the fundamental appeal of guaranteed returns, there’s another security factor at play here. A recent report from the Australian Crime Commission showed that financially literate, educated middle-aged men are the prime targets of fraud, often as a result of chasing high returns and signing on to fake investments lured by fancy websites or brochures. Trustees can be reassured by the safety provided by the financial institutions offering term deposits – in terms of their return profile, the Australian Government Deposit Guarantee as well as the anti-fraud measures that online banks such as RaboDirect have in place to ensure that our customers funds are kept safe.”
Key points
- In the last 12 months, investments in RaboDirect’s 5 year term deposits have more than doubled
- Year on year the proportion of RaboDirect 5 year Term Deposits invested by SMSFs has increased by over 80%
- Interestingly the greatest growth in 5 year Term Deposits for SMSFs has been from those aged under 50, with the most significant increase coming from those aged 20-30 and 30-40.
- Three-month terms have also seen an jump in popularity in over the past year, likely resulting from customers switching from cash to term deposits to maintain liquidity and improve short term yields.