Steve Campbell: Is it time to get into TDs? I say no, no, no | Pendal Group
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Steve Campbell: Is it time to get into TDs? I say no, no, no

Don’t be fooled by the allure of higher term-deposit rates – you can do better, says our head of cash strategies STEVE CAMPBELL

IT’S a bad take on Amy Winehouse, but ‘no, no, no’ is bang-on when it comes to investing in term deposits right now.

The TD question is increasingly coming up as the Reserve Bank moves closer to pausing monetary policy tightening.

In early 2022, after being starved for yields over an extended period, investors were awestruck with the 1%+ yields on offer for 12-18-month tenors.

At the time it looked great.

I doubt those who locked in are feeling so happy now about the decision to tie liquidity up in a lower yielding asset.

We can expect the Reserve Bank to hike rates twice more in the near term, taking the cash rate to 3.85%.

Find out about

Pendal’s
cash funds

For vanilla cash funds, we expect a return in the 4.1% to 4.3% range and higher again in Pendal Short Term Income Securities Fund.

Yes, our vanilla cash funds and the Short Term Income Securities Fund do carry other risks compared to term deposits including a higher credit risk.

Term deposits up to $250,000 carry a government guarantee under the Financial Claims Scheme, something that our funds do not benefit from. Widening credit spreads can also detract performance on the Short Term Income Securities Fund.

The advantage? Access to liquidity on a same-day or t+1 basis.

Last year we had no lack of volatility in financial markets, as shown by the VIX index below:

Source: Bloomberg

This year may not be as volatile, but I doubt calm waters lay ahead for the rest of 2023.

The effect of large monetary policy tightening is still to be felt.

Inflation has proved to be more persistent than expected. Labour markets continue to surprise globally with their recent strength.

In this environment why lock up liquidity in a term deposit?

The marginal return is not that different to highly liquid funds and TDs can only be broken in extreme circumstances – none of which anyone wants to experience.

Higher liquidity is something that should be increasingly valued in the year ahead.

TDs? No, no, no.


About Steve Campbell and Pendal’s Income and Fixed Interest team

Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.

Find out more about  Pendal’s cash funds:

Short Term Income Securities Fund

Pendal Stable Cash Plus Fund

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

The team won Lonsec’s Active Fixed Income Fund of the Year award in 2021 and Zenith’s Australian Fixed Interest award in 2020.

Find out more about Pendal’s fixed interest strategies here


This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at February 15, 2023. PFSL is the responsible entity and issuer of units in the Pendal Short Term Income Securities Fund (Fund) ARSN: 088 863 469. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

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