Australia: Exchange traded corporate bonds – an alternative to term deposits

RFi Group data shows that the proportion of Australians that hold term deposits has remained steady for the last 3 years. In a market of high volatility, term deposits may be considered a low-risk investment option, however APRA data shows that household bank held deposits still are over $880 billion as of December 2017.

Although almost 1 in 5 consumers hold a term deposit another option for retail investors looking for low-risk investments is corporate bonds. In the past, the majority of retail investors didn’t have access to corporate bonds and were instead forced to choose between high-risk equities or low-risk term deposits.

"Corporate bonds are considered to be slightly riskier than term deposits but are still considered low-risk investments as they are “high up” in the corporate structure."

However, now exchange-traded bonds allow investors to access corporate bonds issued by companies on the ASX, providing the price stability and fixed income from the underlying bond with no minimum investment.

Corporate bonds are considered to be slightly riskier than term deposits but are still considered low-risk investments as they are “high up” in the corporate structure. If a company were to go under, term deposits are first to be paid back, followed by corporate bonds.

According to Richard Murphy, Co-Founder and CEO of XTB, corporate bonds can provide up to 40% higher returns compared to term deposits. Similar to a term deposit, corporate bonds allow you to accurately predict your overall returns when the bond reaches maturity, with the added convenience of having more liquidity available through ASX trading.

 

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