Term deposits 'offer better returns' than government bonds

Australian savers and investors aiming to add more "defensive assets" to their super or non-super portfolios this year should look to compare term deposits in search of strong returns, it has been suggested.

Weighing up the benefits of term deposits against bond funds, Sydney Morning Herald finance writer John Kavanagh noted that six and 12-month term deposits are currently offering yields of about six per cent compared to 5.2 per cent yields on three to five-year government bonds.

Indeed, he quoted FIIG Securities analyst Brad Newcombe who recently wrote in his group's newsletter that investors must consider the liquidity of bonds against the superior returns of term deposits.

"Newcombe's view is that the superior returns outweigh the risk of having to pay an exit fee to get out of a term deposit early," noted Mr Kavanagh.

However, while also referring to the advantages of term deposits, Peter Dorrian, head of global wealth management Australia at Pimco, commented that "bond funds have done well through active management over the past year".

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