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Reserve Bank of Australia
Interest rates

Cash – Still King or Dunce?

Glenn Fairbairn
Director/Private Client Adviser
12 Aug 2013

On Tuesday 6 August, the Reserve Bank of Australia cut official interest rates by 0.25% to 2.5% – its lowest level since early 1959. Reserve Bank Governor, Glenn Stevens, said the nation’s economy had been growing more slowly than its long-term trend rate over the past year and that this is expected to continue in the near term as the economy adjusts to lower levels of mining investment. He also pointed out that the unemployment rate had edged higher.

The continued downward trend of official interest rates has been great news for home owners with standard variable mortgage rates at the major banks at around 5.95 per cent down from their  peak of 7.8 per cent in 2011.

Standard variable mortgage rates are now at their lowest level since the early 1970s, while the official cash rate is at its lowest point since inflation targeting began in the early 90s.

A lot gets said about the upside of falling interest rates. However, what is often  missed is that (1) low interest rates are generally a sign that the economy is slowing and is in need of a “shot in the arm”; and (2) those reliant on interest earnings on cash to meet their income needs; i.e. self-funded retirees, are the forgotten losers.

It is for this reason that the current interest rate environment is not the best time to be holding large amounts of cash or bank term deposits. Although this strategy held many investors in good stead during the GFC when asset values were  falling, in the current environment the rate of return form term deposits is barely sufficient to offset the effects of inflation.

The following table provides a summary of the current gross dividend yields paid by the largest ten companies on the Australian Stock Exchange by Market Capitalisation.


Now I am not telling everyone to rush out and switch from all your cash holdings to the above Australian company shares. However, considering that three month term deposit rates with the four majors are currently around 3.5%, it may be time to look closely at the overall balance of your portfolio and consider some alternatives. Sure, your capital may be subject to market volatility, but it is worth noting that dividend rates only changed marginally over the course of the GFC and many companies are now in far better shape – and paying higher dividends – than ever before.


Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.