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New official data from the Reserve Bank of Australia (RBA) revealed that term deposit and savings interest rates fell in February 2025 and could decline further.
Despite this, self-managed superannuation funds (SMSFs) are still holding record levels of cash, according to Simon Arraj, founder and responsible manager of Vado Private.
The Australian Taxation Office (ATO) reported that SMSF assets under management (AUM) reached $1.02 trillion in the December quarter.
SMSFs held $161.4 billion in cash investments as of 31 December, up from $160.7 billion in the September quarter, representing approximately 16.0 per cent of their total assets.
This comes despite a drop in savings account returns. New data from the RBA showed that three-year term bank deposit interest rates fell to just 3.25 per cent p.a. in February 2025, well below the 4.0 per cent recorded a year earlier.
Online savings accounts also saw a reduction, returning just 1.70 per cent to savers, down from 1.85 per cent, according to the RBA.
“Compared to inflation at around 2.5 per cent in December 2024, real returns on bank online savings accounts are now well below zero. The bottom line for cash investors is that savings rates could fall further this year if official rates fall again,” Arraj said.
“In such an environment, SMSFs should be rethinking their cash investments, and equity holdings too, as share market volatility returns dramatically under the Trump US government.”
Despite the ongoing volatility in the equity market, SMSFs invested significantly in Australian shares, with $277.6 billion allocated to them in the December quarter, accounting for 27.2 per cent of total SMSF assets.
However, this was a slight decrease from $281.7 billion in the September 2025 quarter. SMSFs also invested a record $168 billion in direct property, which accounted for 16.5 per cent of their total assets.
On the other hand, fixed income investments made up just $11.7 billion of SMSF assets, with another $7.1 billion invested in loans, representing only 1.8 per cent of total SMSF assets.
"With the share market correcting, SMSFs would benefit from a more balanced approach to asset allocation, including greater fixed income allocations, including to private credit,” Arraj said.
“These investments have historically offered attractive yields, which is very important to all investors, particularly as equity markets fall.”
The Australian sharemarket has dropped by around 4 per cent over 2025 to 17 March, contributing to investor insecurity.
In the US, equity markets have experienced a larger decline, particularly in technology stocks, with the Nasdaq Composite Index down around 7.8 per cent and the S&P 500 down 3.3 per cent for the year to date.
“Heightened uncertainty about US trade tariffs and the threat of a global trade war has pushed many investors to sell equities. Private credit can provide much calmer waters for investors than share markets,” Arraj said.
The International Monetary Fund (IMF) said that private credit has expanded rapidly since the global financial crisis (GFC), taking market share from bank lending and bond markets, especially in the long period of low interest rates that drove the expansion of alternative investment strategies.
“Private credit returns are robust at a time when falling term deposit and savings account rates are eroding the real return investors get on investments. For SMSF investors seeking higher yield, now is the time to consider reallocating some of their assets to private credit investments,” Arraj said.
[RELATED: Brokers should stay on their toes amid the private credit ‘boom’]
