If you’re looking for at term deposits, you’re likely looking for security PLUS the highest interest rate you can find.
Currently, however much shopping around you do, you’re unlikely to find anything more than 2.25% pa¹. If you are looking for 3-6 month TDs the average rate is now below 2%¹.
These are the lowest ever TD rates – the lowest since records began in 1982¹. Nobody can be blamed for wanting their cash to work harder for them.
XTBs vs. Term deposits
There is an alternative – it is possible to get your cash working harder. If you’re looking for a low risk investment that provides an attractive and stable income, XTBs might be the answer.
¹ Source: RBA & Sydney Morning Herald
What are corporate bonds?
If a company wants to borrow money to fund growth, or other investments, 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.
Corporate bonds are difficult to access for most individual investors due to the high minimum investment – normally $500,000.
XTBs (or Exchange Traded Bond units), are securities traded on the Australian Stock Exchange (ASX) that give you exposure to the benefits of individual corporate bonds. You receive the same coupons and principal payment that you’d receive if you were to invest directly in a corporate bond.
- Coupons = regular, fixed income paid for the lifetime of the bond
- Principal payment = the amount you lend the company, paid back to you at maturity of the bond.
Easy to access, cost effective and flexible
XTBs trade in large and small parcel sizes, meaning they are accessible to all investors – not just those with very large portfolios. Because XTBs are traded on the ASX, they can easily be bought and sold at any time, so you can access your money at any time.