Fixed-income investments in Australia

Compare managed funds, term deposits, and trading platforms to invest in fixed income.

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Fixed interest or fixed income is a type of investment that offers regular set returns over a specific period of time. The idea of fixed interest is that your rate of return is known, so unlike when you invest in stocks or most other kinds of investments, your wealth doesn’t fluctuate or fall.

For this reason, fixed-income assets are often seen as one of the safest forms of investing. Common fixed-income assets include government bonds, company bonds, cash and gold.

How to invest in fixed income

First, it’s important to understand that fixed income encompasses many different kinds of products. Even if a fund has labelled itself as being “fixed income” or “fixed interest”, it does not mean that your returns are guaranteed or that your money is safe from market volatility.

Fixed-income products also differ broadly in terms of risk and performance. While fixed-income products offered by the banks, such as term deposits, have a safety guarantee of up to $250,000, non-bank products broadly categorised as “investment funds” have no such guarantee and are regulated entirely differently.

Examples of products that are commonly classified as fixed-income investments are outlined in this guide below:

See below to read more about the different benefits and risks of fixed-income investing.

Peer-to-peer lending for investors

Peer-to-peer (P2P) lending platforms connect everyday borrowers with investors. Investors replace the banks to become lenders while borrowers sign up to the same platform to receive loans.

Investors benefit from loaning their funds through a P2P because they can get a higher return than they normally would by investing in a banking product. Plus, most P2P funds offer fixed returns over a period of several months or years, making these a potentially less volatile option than share-market investing or investing in other kinds of managed funds.

Compare P2P investment accounts

Name Product Minimum deposit Target return Investment term Available to everyday customers?
Plenti (Investing)
$10
up to 6.5% p.a.
1 month to 7 years
Yes
Plenti is a peer-to-peer lender that connects investors with borrowers.
SocietyOne
SocietyOne
$100,000
Up to 6% p.a.
1 to 5 years
No
Marketlend
Marketlend
$100
Up to 13.3% p.a.
1 year
No
Thin Cats
Thin Cats
$1,000
Up to 15.1% p.a.
2 to 5 years
No
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Disclaimer: Investments made through a P2P lending platform are not protected and are subject to risks including credit risk (defaults) and liquidity risk. These investments are not subject to review by the Australian Financial Complaints Authority. Actual returns may vary from the Expected Returns declared by the Providers. Read the PDS for details before investing and consider your own circumstances, or get advice, before investing.

What are the pros?

  • Fixed rate. When you invest in a P2P fund, you’re agreeing to a fixed rate of return. So long as the fund delivers on its promise, you’ll know what to expect at the end of the term.
  • Higher returns. Most P2P funds offer higher interest-rate returns than bank products like term deposits or savings accounts.
  • Potentially less risky. Although risk level varies enormously across P2P products, they tend to be less volatile than stocks and many are considered far safer.

What are the cons?

  • No guaranteed return. Although you have the potential to get a higher return than you normally would with a term deposit or savings account, there's the possibility of losing your money if a borrower defaults.
  • Credit ratings. P2Ps sometimes categorise funds as low risk or high risk, but to date, there is no regulated standard across operators, which makes it difficult to compare funds.
  • Exiting the fund. Like a term deposit, you’re locked into the fund for a set duration and you can expect penalties should you choose to exit before the term ends.

For more about the pros and cons of this type of product, you can read our comprehensive guide to peer-to-peer investing.

Invest in term deposits

A term deposit is a banking account in which funds are locked down for a specified period of time. In return, the issuing financial institution rewards you with interest on your money at an agreed-upon rate. It's considered one of the safest options available to investors.

Because the interest rate is fixed, you know exactly how much your pool of money will have grown by at the end of the term. Once the term ends, you can withdraw the money or reinvest it. The down side is that if you choose to withdraw your funds early, there’s usually a cash penalty applied.

For more information on bank products, you can read our comprehensive guide to term deposits and high interest savings accounts.

What are the pros?

  • Fixed rate. You’re agreeing to a fixed rate of return, so you know exactly what you’ll get at the end of the term.
  • Very low risk. There are few options safer for your money than a term deposit. There is no market volatility and little or no risk of losing your investment.
  • Guaranteed protection. Term deposits through a bank are guaranteed by the government to the amount of $250,000.

What are the cons?

  • Lower returns. The fixed-rate returns are typically lower than with other investment products.
  • Exiting the fund. You’re locked into the fund for a set duration, and you can expect penalties if you choose to exit before the term ends.

Invest in bonds

When most people think of fixed interest, they think of the bond market. A bond is a contract where you lend money to a business or government. In return, the organisation promises to pay you back at a fixed rate of interest.

Bonds are considered to be one of the safest assets you can invest in. So long as the organisation issuing the bond doesn’t collapse, there’s little chance that you’ll lose your money. For this reason, government and blue chip company bonds tend to be a safe bet, but there are exceptions.

Investing directly in the bond market typically requires a high minimum investment of around $500,000. Those looking to invest less can buy units in bond-managed funds, ETFs or exchange-traded bonds.

Compare trading platforms to access exchange traded bonds

Name Product Standard brokerage fee Inactivity fee Markets International
eToro (global stocks)
US$0
US$10 per month if there’s been no login for 12 months
Global shares, US shares, ETFs
Yes
Zero brokerage share trading on US, Hong Kong and European stocks with trades as low as $50.
Note: This broker offers CFDs which are volatile investment products and most clients lose money trading CFDs with this provider.
Join the world’s biggest social trading network when you trade stocks, commodities and currencies from the one account.
IG Share Trading
$8
$50 per quarter if you make fewer than three trades in that period
ASX shares, Global shares
Yes
$0 brokerage for US and global shares plus get an active trader discount of $5 commission on Australian shares.
Enjoy some of the lowest brokerage fees on the market when trading Australian shares, international shares, plus get access to 24-hour customer support.
Superhero share trading
$5
No
ASX shares, US shares
Yes
Australia’s lowest-cost broker for ASX shares and ETFs.
Pay zero brokerage on US stocks and all ETFs and just $5 (flat fee) to trade Australian shares from your mobile or desktop.
ThinkMarkets Share Trading
$8
No
ASX shares
No
Limited-time offer: Get 10 free ASX trades ($0 brokerage) when you open a share trading account with ThinkMarkets before 31 December 2021(T&Cs apply). $8 flat fee brokerage for CHESS Sponsored ASX stocks (HIN ownership), plus free live stock price data on an easy to use mobile app.
Bell Direct Share Trading
Finder AwardExclusive
Bell Direct Share Trading
$15
No
ASX shares, mFunds, ETFs
No
Finder Exclusive: Get 5 free stock trades and unlimited ETF trades until 31 Dec 2021, when you join Bell Direct. T&Cs apply.
Bell Direct offers a one-second placement guarantee on market-to-limit ASX orders or your trade is free, plus enjoy extensive free research reports from top financial experts.
SelfWealth (Basic account)
$9.5
No
ASX shares, US shares
Yes
Trade ASX and US shares for a flat fee of $9.50, regardless of the trade size.
New customers receive free access to Community Insights with SelfWealth Premium for the first 90 days. Follow other investors and benchmark your portfolio performance.
Saxo Capital Markets (Classic account)
$5
No
ASX shares, Global shares, Forex, CFDs, Margin trading, Options trading, ETFs
Yes
Access 19,000+ stocks on 40+ exchanges worldwide
Low fees for Australian and global share trading, no inactivity fees, low currency conversion fee and optimised for mobile.
CMC Markets Invest
$11
No
ASX shares, Global shares, mFunds, ETFs
Yes
$0 brokerage on global shares including US, UK and Japan markets.
Trade up to 9,000 products, including shares, ETFs and managed funds, plus access up to 15 major global and Australian stock exchanges.
HSBC Online Share Trading
$19.95
No
ASX shares, mFunds, ETFs, Bonds
No
Limited time offer: Get up to $100 in brokerage rebates on your first 5 trades when you sign up to a HSBC Online Share Trading account (T&Cs apply). Make trades online with brokerage fees starting from just $19.95 with an HSBC Online Share Trading account. Plus gain access to complimentary expert research, trading ideas and tools.
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Important: Share trading can be financially risky and the value of your investment can go down as well as up. Standard brokerage is the cost to purchase $1,000 or less of equities without any qualifications or special eligibility. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

What are the pros?

  • Fixed rate. When you invest directly in bonds, you know exactly what return you’ll get at the bond’s maturity rate.
  • Low risk. Investment-grade bonds are considered one of the safest investment options available.
  • Returns. The investment returns that you get from some bonds are higher than what you can expect from some term deposits or savings accounts.
  • Regular income. When you invest in bonds, you receive income in the form of coupon payments on a regular basis.

What are the cons?

  • Lower returns. Bonds typically offer lower returns than what you can potentially get from share trading and some investment funds.
  • Exiting the investment. In most cases, you’ll be penalised for exiting before the maturity date.
  • High investment. Bonds typically require a minimum investment of around $500,000.

Fixed-income funds and ETFs

Today, there are many managed investment funds, listed investment trusts (LITs), listed investment companies (LICs) and ETFs that offer access to fixed-interest assets.

Investment funds are a portfolio of assets that can include shares, bonds, cash and derivative products. These funds are managed by a group of investment professionals who decide which assets the fund will hold or which index it’s tracking.

Some of these funds offer fixed income in the form of dividends, and others benefit from the rising demand for bonds or cash as an asset class. It’s important to understand that although they may hold fixed-income assets, they might not offer fixed-interest payments or maturity dates.

Investment funds come with different rules, requirements and risks that are at the discretion of the issuer.

Many of these products are complex and require expert advice. For more information on these, you can follow the links to our guides:

Compare trading platforms that offer managed funds

Name Product Standard brokerage fee Inactivity fee Markets International
Bell Direct Share Trading
Finder AwardExclusive
Bell Direct Share Trading
$15
No
ASX shares, mFunds, ETFs
No
Finder Exclusive: Get 5 free stock trades and unlimited ETF trades until 31 Dec 2021, when you join Bell Direct. T&Cs apply.
Bell Direct offers a one-second placement guarantee on market-to-limit ASX orders or your trade is free, plus enjoy extensive free research reports from top financial experts.
CMC Markets Invest
$11
No
ASX shares, Global shares, mFunds, ETFs
Yes
$0 brokerage on global shares including US, UK and Japan markets.
Trade up to 9,000 products, including shares, ETFs and managed funds, plus access up to 15 major global and Australian stock exchanges.
HSBC Online Share Trading
$19.95
No
ASX shares, mFunds, ETFs, Bonds
No
Limited time offer: Get up to $100 in brokerage rebates on your first 5 trades when you sign up to a HSBC Online Share Trading account (T&Cs apply). Make trades online with brokerage fees starting from just $19.95 with an HSBC Online Share Trading account. Plus gain access to complimentary expert research, trading ideas and tools.
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Compare up to 4 providers

Important: Share trading can be financially risky and the value of your investment can go down as well as up. Standard brokerage is the cost to purchase $1,000 or less of equities without any qualifications or special eligibility. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

*Brokerage fees shown are for standard share trading, see below for a list of mFund fees.

What are the pros?

  • Higher returns. There’s the potential to get a higher capital return than traditional bond investing.
  • Liquidity. Funds listed on a stock exchange can offer high liquidity.
  • Flexibility. Fixed-interest funds have options to suit a broader range of investors than direct bond investing as they can hold any number of securities.
  • Cost. It’s possible to invest in bond funds for as little as a few hundred or thousand dollars, rather than $500,000 for direct bond investing.

What are the cons?

  • May not have set return. Investment funds have their own rules around interest payments, and this may not be fixed as with other income products.
  • Transparency. Investment funds, LICs and LITS may hold any number of assets, including risky derivative products, and these do not always need to be reported immediately. This means investors may not know exactly what they’re investing in.
  • Uncertain return. There’s no guarantee that you’ll receive the return that you hope for as the fund’s value may fluctuate depending on market demand.

Invest in hybrid securities

Hybrid securities are contracts issued by companies, banks or insurers that have both debt and equity features. They may also be referred to as convertible bonds, capital notes, subordinated notes and convertible preference shares, depending on the contract and issuer.

Although these securities behave similarly to bonds, they can be far riskier and are sometimes classified as “growth products” rather than “fixed-income products”.

They typically work by paying interest to investors for a specified period of time, and they’re oftentimes listed on a stock exchange and traded like shares. This means the market price may be volatile and an investor risks losing money if it falls below the buying price.

Unlike bonds, there’s enormous flexibility on the issuer’s part, which can make the products riskier or complex for investors. For example, some hybrids allow the issuer to cancel the deal, suspend payments or convert the securities into shares as they choose.

What are the pros?

  • High returns. As with other kinds of risky investments, there’s the potential to earn a higher return on investment than with bonds.
  • Volatility. Their price is typically less volatile than shares.
  • Income. Hybrids typically offer regular income payments that may include franking credits.

What are the cons?

  • Unsecured investment. They may be unsecured, which means you risk losing your investment entirely should the company become insolvent.
  • Market and interest rate volatility. If the fund falls below the price you paid for it, you risk losing money while interest rates changes can also impact the hybrid's value.
  • Liquidity. The market for hybrids is smaller than shares, which means it may be harder to sell for a competitive price if demand falls.
  • Income not guaranteed. Investors may not be paid an income or have their payments deferred for months or years, depending on the contract. This may be due to legal changes, corporate losses or other reasons.
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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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