Term Deposit rates are at historic lows – XTBs can make your money work harder
Term Deposit rates are the lowest since records began in 1982¹.
Most Term Deposit are currently returning less than 2.25% pa¹ and if you are looking for 3-6 month Term Deposit the average rate is now below 2%¹.
As a savvy investor, no-one would blame you for wanting your cash to work harder for you. And it can.
The solution for security AND income
There is an alternative. If you’re looking for a low-risk investment that provides an attractive and stable income, XTBs might be the answer.
What are XTBs?
XTBs (or Exchange Traded Bond units), are securities traded on the ASX that give you exposure to the benefits of corporate bonds.
XTBs offer the security of bonds issued by some of Australia’s most prominent companies and provide regular income and returns that in many cases beat those offered by current term deposits.
How do XTBs compare to Term Deposits?
The return, or ‘yield’, of individual XTBs varies, but can be as high as 3.6%2.
Compare this to the current average return for a 3-6 month Term Deposit with a big 4 bank of 2.3%3 and XTBs can provide up to a 50% higher return.
The table below shows how XTBs compare to Term Deposits for a range of attributes which are important for many investors.
In absolute terms, both Term Deposits and XTBs are low risk. Term Deposits also enjoy the benefit of the $250,000 government guarantee, making TDs the least risky of the two. Find out more about how to balance the choice of risk vs return.
1 Source: RBA & Sydney Morning Herald
2 Source: XTB – Dexus XTB (YTMDX1) YTM as at 30.04.18
3 Source: Canstar $10,000 investment in a top 4 bank TD as at 30.04.18
What are corporate bonds?
If a company wants to borrow money it has two options; borrow from a bank, or issue bonds.
Corporate bonds are basically IOUs that:
- Pay back the loan when the bond matures – known as the ‘principal’ or ‘face value’.
- Deliver a steady stream of income, normally paid quarterly or semi-annually throughout the life of the bond – known as the coupon.
Historically, corporate bonds have been difficult to access for most individual investors due to the high minimum investment. But not any more.
XTBs make corporate bonds easy to access, cost effective and flexible
When you invest in XTBs, you receive the same coupons and principal payment that you’d receive if you were to invest directly in a corporate bond.
But XTBs are much easier to access than traditional corporate bonds – they’re traded on the ASX, which means they’re accessible to all investors – not just those with large portfolios.
XTBs can also be bought and sold through your existing broker, so you can access your money at any time. Unlike Term Deposits, you aren’t locked in for the entire term or penalised if you want to end the contract early.
XTB vs. Big 4 TD Rates 13.02.18:
For the full story of how XTBs compare to Term Deposits and a host of other investment options, download our free guide.