Decent returns when rates are low


How to make decent returns when rates are low? Term deposit rates have fallen to levels where investors are questioning the value of safety. Where to now?

How to make decent returns when term deposit rates are so low?

Cash and interest bearing income levels are at or near historically low points in all pure defensive plays. In part this reflects ongoing Central Bank intervention in credit markets as attempts continue to be made to cope with the fallout from the Global Financial Crisis which was itself triggered by the Global Banking Crisis. Central Bankers have purposefully set out to reduce the benefits of savings and force more money into higher risk areas to stimulate growth and consumption. While this may be beneficial from a national or global perspective, it has created a nightmare for individual investors who must consider their willingness to take more risk and their capacity to deal with the potential for losses as a result of taking that extra risk. Where do you find decent returns when rates are low?

How do you make higher earnings in a low rate environment

Balancing risk and return in a low interest rate environment needs a lot of concentration on the basics.

How do you deal with low interest rates?

There has been an increasing trend to “Do It Yourself” for investments globally. While this is positive for investor engagement, the underlying backlash against professional investment advice means many investors will attempt the difficult task of moving out of safe investment areas on their own. While advisers are far from perfect, they do have hard-won experience in markets, strategy and analysis of options. In just one example – perhaps there is another way to improve net returns? You could look to save on costs, reduce taxes or even potentially reduce your expectations?

Take a moment to pause, and think

If you cannot achieve your aims through better strategies or careful cost control then you must address investment returns. Cash or fixed income returns can only be improved through increasing either credit risk or duration risk. Longer timeframes are not being rewarded by materially higher interest rates in this market, so there is limited benefit from extending term deposit timeframes.

financial planning perth pause and think unsplash photo by Eutah Mizushima

Stop for a moment. Pause, and think. [image source:, photo by Eutah Mizushima]

Move too far into less creditworthy areas of fixed income investments and you are no longer defensive. In fact, your risk of loss of capital becomes higher and you are no longer treating this component of your money as “safe” or “defensive”. In other words, you are looking at an increased possibility of losing capital yet you still have no higher potential return than your ongoing income earnings because you are attempting to eat your cake and have it too. How do you find decent returns when rates are low? You must now either accept lower returns or move to increase your exposure to growth assets such as shares or property. It may be time to diversify.

Diversification – old fashioned but it works!

Diversification is a powerful solution but it is difficult to get ‘right’. At times of market extremes, all assets other than cash tend to move the same way, so while diversification is a good answer to low term deposit returns, it takes a lot of work to get the risk side of the equation correct.

financial planning perth diversify photo from unsplash by Saul Cuellar

Diversification – more sophisticated than first looks suggest, and requiring time to build a robust system [image source:, photo by Saul Cuellar]

Context – are returns low or is it just low interest rates?

Consider also that returns in investment markets are currently “low” or “high” depending on your perspective. Treasurer Joe Hockey recently stated that returns are low and investors need to look further afield, yet at the same time the people from Australian Super were warning members that the very high returns could not be expected to last. Who is right?

As usual, comments, criticisms or corrections cheerfully received.

Remember the Great Disclaimer

Nothing in this article or on this site is to be deemed personal financial advice. It is general advice only, and must not be used as a basis for investment or strategy decisions without taking into account your full personal financial position, attitudes to risk and capacity to deal with risks.



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