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 an investment that offers regular set returns over a specified period of time. Unlike when you invest in stocks or most other kinds of investments, the idea of fixed interest is that your rate of return is known, and it doesn’t fluctuate or fall.

For this reason, fixed-income assets are often thought of as one of the safest forms of investing because you avoid the price fluctuations you’d typically get when investing in the stock market. Common fixed-income assets include government bonds, company bonds, cash and gold.

How to invest in fixed income

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

Updated November 18th, 2019
Name Product Minimum deposit Target return Investment term Available to everyday customers?
$10
Up to 7.8% p.a.
1 month to 7 years
Yes

Compare up to 4 providers

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.

Compare term deposits

Rates last updated November 18th, 2019
$
Name Product 3 Mths p.a. 4 Mths p.a. 5 Mths p.a. 6 Mths p.a. 7 Mths p.a. 12 Mths p.a. 24 Mths p.a. Product Description Interest Earned
Judo Bank Term Deposit
-
-
-
2.00%
-
2.00%
1.95%
Earn a 0.10% p.a. loyalty bonus when you roll over your term.
The Judo Bank Term Deposit term lengths range from six months to five years. Minimum opening deposit is $1,000. No account-keeping or set-up fees to pay.
Citibank Term Deposit 250K
2.00%
-
-
1.80%
-
-
-
A short-term investment option with a guaranteed rate of return.
Suited to customers with deposits over $250,000.
MyState Bank Online Term Deposit
1.90%
-
-
1.70%
-
-
-
Single or joint account-holders can apply online with MyState's online application process.
The MyState Bank Online Term Deposit has a choice of term lengths. Interest is paid upon maturity of the term deposit.
Bank of Sydney Term Deposit Online Exclusive
1.85%
1.85%
1.90%
1.90%
1.90%
1.75%
-
$0 monthly account keeping fees.
The Online Exclusive Term Deposit by Bank of Sydney offers term lengths from 1 month to 13 months. Withdraw funds before maturity without notice (fees apply).
Commonwealth Bank Term Deposit
1.25%
1.25%
1.20%
1.25%
1.05%
1.35%
1.15%
Westpac Term Deposit
1.30%
1.20%
1.15%
1.15%
1.10%
1.20%
1.20%
Enjoy flexible repayment and reinvestment options at the end of the term with no setup or service fee.
ANZ Term Deposit
0.85%
0.85%
0.85%
0.85%
0.85%
0.90%
1.15%
Pay no account-keeping or application fees.
Invest your funds for up to 5 years and receive a competitive rate of interest.
NAB Term Deposit
1.25%
1.25%
1.30%
1.10%
1.10%
1.20%
1.15%
Earn high interest from NAB Term Deposit account with no account fees and no application fees.
ANZ Advance Notice Term Deposit (31 days notice required for early withdrawals)
1.45%
1.38%
1.30%
1.35%
1.60%
1.40%
1.30%

Compare up to 4 providers

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

Updated November 18th, 2019
Name Product Monthly fee Standard Brokerage Fee Margin trading - Online
$0
$8.00 or 0.1%
Yes
Special offer: Earn up to 10,000 Qantas Points when you start trading on a new IG Share Trading account. T&C applies.
Enjoy some of the lowest brokerage fees on the market when trading Australian shares, international shares, forex and CFDs, plus get access to 24-hour customer support.
$0
$6.99 or 0.1%
Yes
High quality, low-cost brokerage on global share trading.
Access up to 19,000 global stocks on 36 of the world’s major stock exchanges and enjoy some of the most competitive FX rates on the the market when you trade with Saxo Capital Markets.
$0
$9.50
No
Trade ASX-listed 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.
$0
$15 for first 10 trades
Yes
Offer: For a limited time, get a custom deal based on your trading preferences when you switch to Bell Direct.
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.

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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

Updated November 18th, 2019
Name Product Monthly fee Standard Brokerage Fee Margin trading - Online
$0
$15 for first 10 trades
Yes
Offer: For a limited time, get a custom deal based on your trading preferences when you switch to Bell Direct.
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.

Compare up to 4 providers

*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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