Interest rates on three-year term deposits have fallen to their lowest levels in two years, with major banks reducing the rates on these savings accounts, Capspace reported.
Tim Keith (pictured above), managing director at Capspace, a private credit fund manager, suggested that the decrease could encourage savers to explore private credit for higher returns.
“Australian banks have slashed term deposit rates in 2024, and most savers are now receiving less than 4% on new term deposits,” Keith said.
Data from the Reserve Bank showed that the average advertised interest rate for three-year term deposits dropped to 3.35% in October from 3.6% in September and down from 4.0% at the start of the year.
Rates across all term deposit maturities also fell slightly, with the average hitting 3.35% in October.
According to Keith, savers may want to consider private credit for higher returns compared to term deposits.
“Private credit offers attractive income; Australia’s largest superannuation funds are allocating more to private credit, achieving returns in the 10% range,” he said.
Although private credit involves more risk than term deposits, the Capspace Private Debt Fund has yielded a 9.3% return in October, with monthly interest payouts and flexible access to funds with 60 days’ notice.
Private credit, which lends to middle-market companies that traditional banks often bypass, has become an essential source of financing with higher risk-adjusted returns.
“Private credit offers income that Australians need in retirement to maintain a comfortable standard of living,” Keith said.
Unlike term deposits, which offer fixed returns, private credit investments tend to offer floating rates linked to market interest rates, providing potential inflation protection.
Keith emphasised the importance of assessing individual financial goals, risk tolerance, and investment timelines.
For income-seeking investors prepared to take on more risk than term deposits, private credit can diversify portfolios and act as a hedge against inflation, especially with floating rate returns, Capspace reported.
In related news, the Centuria Bass Australian Property Development and Finance Index 2024 revealed that private credit is rapidly expanding its role in the property development sector, as banks become more cautious about financing mid-market projects.
Meanwhile, private credit is stepping in to fill a crucial gap for mid-market businesses as traditional banks, bound by strict regulations, become increasingly hesitant to lend, according to GAP Business Loans.
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
