The official cash rate has remained at an unprecedented low of 0.1% in response to severe economic weakness caused by the COVID-19 pandemic.

By decreasing the cash rate, the Reserve Bank of Australia (RBA) aimed to stimulate the economy by encouraging spending and investing via low returns on savings and reduced borrowing costs respectively.

What does this mean for Australian Catholic Superannuation’s Cash & Term Deposits option?

Given the reduction in the official cash rate, we advised back in February this year that there was a high risk that future returns from the Fund’s Bonds and Cash & Term Deposits options may result in a negative return after fees and taxes. This has occurred for the first time in October 2021 on our Cash and Term deposits investment option.

What has driven this outcome?

The yield and thus returns on the Cash & Term Deposits option, has been steadily declining in line with the RBA cash rate for some time. The return for this option over the past 10 years has been 2.5% per annum, which is marginally above the average inflation rate of 2.0% over this period.

As the Fund’s term deposits expired and new ones were established we have seen a reduction in the Cash and Term deposit returns. After adjusting for the costs of operating this investment, the return from the Cash & Term Deposits option was negative for the first time in October 2021. We do not know when conditions will change and for these unprecedented returns to be higher as they are driven by the RBA’s overnight cash rate.

What does this mean for me?

A negative return on the Cash & Term Deposit option can be challenging so we encourage members to consider their personal circumstances to ensure their investment decisions are aligned with the risks of investing in these options during the current situation.

Additionally, we encourage you to contact your financial adviser to discuss your investments.

If you are a member of Australian Catholic Superannuation, we offer advice on your superannuation investments, contributions or insurance at no additional cost through our limited advice team. Alternatively, we also offer comprehensive advice that looks at a broader range of topics including your finances outside of superannuation. Find out more about our different types of financial advice services or make an appointment today.

Any advice contained on this webpage is of a general nature only, and does not take into account your personal objectives, financial situation or needs. Prior to acting on any information on this webpage, you need to take into account your own financial circumstances, consider the Product Disclosure Statement and/or Target Market Determination for any product you are considering, and seek independent financial advice if you are unsure of what action to take.