AdviserVoiceLower official rates could hit cash investors after RBA cut - AdviserVoice https://www.adviservoice.com.au/2025/05/lower-official-rates-could-hit-cash-investors-after-rba-cut/ Financial planner information & financial planner education/CPD - AdviserVoice Thu, 04 Jun 2026 21:30:42 +0000 en-US hourly 1 https://wordpress.org/?v=7.0 Lower official rates could hit cash investors after RBA cut https://www.adviservoice.com.au/2025/05/lower-official-rates-could-hit-cash-investors-after-rba-cut/ https://www.adviservoice.com.au/2025/05/lower-official-rates-could-hit-cash-investors-after-rba-cut/#respond Wed, 21 May 2025 21:10:25 +0000 https://www.adviservoice.com.au/?p=103533 The central bank’s decision to lower interest rates in May will lead to lower earnings for people who keep their money in cash.

At its May meeting, the Reserve Bank of Australia’s (RBA) Monetary Policy Board decided to lower the cash rate target by 25 basis points to 3.85 per cent and financial markets are betting on more official rate cuts this year.

Share markets are more unpredictable, so many people are saving their money in fixed-term deposits and other cash accounts, but they are still earning less than what inflation reduces the value of their money, so they are effectively losing purchasing power, according to Mark Zukerman, Director and Head of Funds Management, Vado Private.

“With interest rates on online savings accounts now typically returning around 1.5%, and interest rates on term deposits across all maturities averaging just 3.1% in April 2025, that exposes many savers to very low returns, potentially falling below zero given inflation of 2.4%,” Mr Zukerman said.

“While inflation is expected to settle around the middle of the RBA’s 2% to 3% target range, the RBA said that it expects the CPI to increase for a short period when cost-of-living support measures end. That will work to lower the real returns on cash investments,” he said.

“Returns on bank online savings accounts averaged just 1.55% in April 2025, while the best cash investors could get from a one-year term deposit was around 4.0%, and around 3.2% for a three-year term, new data from the RBA shows. Those are not attractive returns and will likely fall even further after the May rate cut.

“In an environment where consumer price inflation could reignite given Trump’s tariffs, investors would be wise to reassess high allocations to cash and look elsewhere as the opportunity of staying in cash rises.

“For a little bit more risk, retail and retirement investors can gain much higher returns by allocating more to fixed income assets, which are typically defensive investments. An allocation to private credit should be a key consideration for any investor seeking reliable income,” Mr Zukerman said.

“While institutional investors have allocated to private credit, Australian retail investors and retirees aren’t yet aware of the appeal of this asset class. Returns of 8% to 10% p.a. are achievable even as private credit managers experience tighter margins and competition intensifies,” he said.

“That is significantly higher than typical yields on investment-grade corporate bonds and more risky residential property investments. The percentage of an investor’s portfolio in  private credit depends on their  goals, risk tolerance, and investment horizon.”

]]> The central bank’s decision to lower interest rates in May will lead to lower earnings for people who keep their money in cash.

At its May meeting, the Reserve Bank of Australia’s (RBA) Monetary Policy Board decided to lower the cash rate target by 25 basis points to 3.85 per cent and financial markets are betting on more official rate cuts this year.

Share markets are more unpredictable, so many people are saving their money in fixed-term deposits and other cash accounts, but they are still earning less than what inflation reduces the value of their money, so they are effectively losing purchasing power, according to Mark Zukerman, Director and Head of Funds Management, Vado Private.

“With interest rates on online savings accounts now typically returning around 1.5%, and interest rates on term deposits across all maturities averaging just 3.1% in April 2025, that exposes many savers to very low returns, potentially falling below zero given inflation of 2.4%,” Mr Zukerman said.

“While inflation is expected to settle around the middle of the RBA’s 2% to 3% target range, the RBA said that it expects the CPI to increase for a short period when cost-of-living support measures end. That will work to lower the real returns on cash investments,” he said.

“Returns on bank online savings accounts averaged just 1.55% in April 2025, while the best cash investors could get from a one-year term deposit was around 4.0%, and around 3.2% for a three-year term, new data from the RBA shows. Those are not attractive returns and will likely fall even further after the May rate cut.

“In an environment where consumer price inflation could reignite given Trump’s tariffs, investors would be wise to reassess high allocations to cash and look elsewhere as the opportunity of staying in cash rises.

“For a little bit more risk, retail and retirement investors can gain much higher returns by allocating more to fixed income assets, which are typically defensive investments. An allocation to private credit should be a key consideration for any investor seeking reliable income,” Mr Zukerman said.

“While institutional investors have allocated to private credit, Australian retail investors and retirees aren’t yet aware of the appeal of this asset class. Returns of 8% to 10% p.a. are achievable even as private credit managers experience tighter margins and competition intensifies,” he said.

“That is significantly higher than typical yields on investment-grade corporate bonds and more risky residential property investments. The percentage of an investor’s portfolio in  private credit depends on their  goals, risk tolerance, and investment horizon.”

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