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By Per Amundsen, Head of Research, Thinktank
This article is the second in a series of four articles dealing with the search for income-bearing securities and the available options by boutique fund manager and specialist commercial property lender, Thinktank.
Cash and term deposits have always had strong appeal to self-managed super funds (SMSFs). Despite the derisory interest rates on offer in recent years, at 31 March 2019 this asset class still comprised $170.9 billion, or 22.9% of total SMSF assets. Although that was a fall from 27% of total SMSF assets at 30 June 2014, trustees still crave the capital security and liquidity this asset class offers.
But that craving is about to be sorely tested and not just because of the Reserve Bank’s recent decision to cut the money market cash rate by 25 basis points, pushing it down to 1.25 per cent. No, it’s the likelihood that this historic low could be breached before the end of the year, taking the cash rate to 1%. This will, or at least should, prompt trustees to rethink their heavy weighting in cash and term deposits.
The simple fact is that, for many savers, any cash at-call today is earning nil interest. Term deposits obviously fare better but even sizeable sums ($100,000+) locked up for three years are only getting about 2.8% – and that’s at the top of the range.