Daniel Dusevic
The big banks have started to cut interest rates on term deposits as bond yields plummet around the globe, which could push investors into higher yielding fixed-income assets such as private credit funds, some of which are returning around 10%, according to Daniel Dusevic, Head of Investor Relations at private credit fund manager Capspace.
The big banks have started reducing their term deposit rates, with one big bank slashing its one-year offering by almost one percentage point. Banks have also cut rates on one-year term deposits, which currently returning less than 5% p.a. and three-year rates, which are returning less than 4% p.a.. According to Mr Dusevic, Australians and savers close to retirement should be devoting more of their investment portfolios to private credit to reap a much higher return on their savings.
“Investors are seeing returns in the 8% to 10% range across private credit. We see those returns being maintained and even potentially going a little higher if Reserve Bank does raise interest rates next month, which remains a possibility given sticky inflation,” said Mr Dusevic.
“Those are very attractive returns for investors. Private credit funds can deliver consistent and reliable income and equity-like returns with lower risk than investing directly in shares or ETFs. That’s important because it is income-yielding assets that will support Australians in everyday living and in retirement,” Mr Dusevic said.
The average advertised interest rate on three-year term deposits was just 3.95% in July 2024, and the one-year rate was a little higher at 4.60%, slightly above the official inflation rate of 3.8%, according to data from the Reserve Bank[1]. In contrast, the yield earned on private credit could increase over the next 12 months, with current returns between 8% to 10%, Mr Dusevic said.
Private credit investments, with returns driven by corporate loans, have benefitted from higher interest rates given rates on such loans typically pay floating coupons, or returns that are linked to official interest rates.
“For income-seeking investors who are willing to take on more risk than that involved with cash or term deposits, private credit investments can deliver investors much higher yields,” said Mr Dusevic. The Capspace Debt Fund yielded a return of 9.3% p.a in July with interest paid monthly and it paid a fixed rate return of 8% p.a..
“It is important for all investors in private credit to fully consider their liquidity needs and capital protection offered by the fund before investing in private credit. A key factor for investors is to ensure their fund manager invests their capital well and protects it through security over the loans, including mortgages over property and general security agreements over the business assets in which the fund invests,” he said.
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