Falling rates, rising risks: options for retired investors as rates fall

The days of term deposits paying an interest rate of more than 5% p.a. are gone, at least for now, with the average term deposit rate much closer to 3%. Further cuts in term deposit and savings rates are likely with financial markets are now pricing in with a near certainty the RBA will cut rates at its May 19-20 meeting, and up to four rate cuts priced in by the year’s end.[1]

With share market correcting too, retirees would benefit from a more fixed income allocations including to private credit, which is less volatile than equities and can deliver greater security. 

While the Australian share market has fallen around 3% over the 2025 year to 23 April, in this new world order of a US Trump administration, US markets have dropped hard, led by technology shares, with the Nasdaq Composite Index down around 13.5% over the year to date, and the S&P 500 down 8.6%.

For retired investors, the risk is that falling inflation and official interest rates could lead to much lower levels of income. The phase-out of bank hybrids too is challenging investors as corporate earnings come under pressure and economies slow. We could see company dividend payouts fall this year or next as they adapt to the new economic environment, characterised by much greater uncertainty as the Trump government targets China.

Yields on term deposits have too dropped. Data from the Reserve Bank of Australia reveals one-year term deposit rates fell to 4.0% in March, down from 4.45% a year earlier. Interest rates across all maturities averaged just 3.20% p.a. in March 2025.

Cash is becoming far less attractive.

Credit offers another option

This leaves income-focused investors in a very difficult position. While investors might turn to term deposits to source defensive income to preserve their purchasing power, with inflation at 2.4%, the real return on savings accounts is close to zero.

Yet alternatives exist beyond cash, property and shares.