How to make your cash work harder in a 5% rate environment

This interview was filmed Wednesday, 10th June, 2026.

With yields sitting around 5%, there's no question that cash is back on investors' radars. As Ben Samuel, senior portfolio manager at First Sentier Investors, puts it, cash now creates a "high hurdle” that your other investments need to clear, particularly for anyone focused on income and capital preservation. 

At these levels, being strategic about where cash is parked can make a material difference to returns. As The O'Jays said, "You want to do things, do things, do things, good things with it."

The obvious options are savings accounts and term deposits. But banks count on something most of us are guilty of - inertia. Most of us have, at some point, let a bonus interest rate lapse or missed the email about a criteria change, or forgotten to make the required monthly deposit - and then allowed our cash earn close to nothing.

As Samuel himself says, six months can go by before you think, 'Where's my interest?'

That's where active cash funds enter the picture. Samuel argues these vehicles are where they are better positioned to optimise across the three core properties of cash: liquidity, capital preservation, and income. 

Term deposits vs cash funds

Using RBA data on advertised rates from the major banks and Macquarie, First Sentier Investors modelled a typical staggered term deposit strategy (12-month deposits maturing every six months) and compared it against their flagship fund over time.

If you are an active term deposit investor, that is, someone who shops around and looks beyond the major banks, the returns were broadly comparable over the medium term, but with some important distinctions.

Term deposits have the edge when rates fall sharply and investors have already locked in a higher rate. The COVID period is the obvious example - if you secured a 12-month deposit just before the RBA cut rates to near zero, you were sitting well ahead of a cash fund that repriced almost immediately.

However, the reverse is also true. When rate cuts are priced into term deposit rates but don't materialise (something that was common through the 2022-to-2025 period), the cash fund benefits from a higher running yield that the term deposit holder simply misses out on.

The liquidity premium you're not getting paid for

So if returns are similar, why bother with a cash fund? The answer, says Samuel, is liquidity.

With a term deposit, your money is locked away. A cash fund keeps it accessible - typically available the next business day for unlisted funds, or two days for the listed ETF equivalent, the First Sentier Active Cash Fund Active ETF (ASX: FSCF).

"Something you are not getting paid for is illiquidity," Samuel says. "If your plans change, if you need your money, it's available. Obviously, that's not the case with a term deposit."

That flexibility matters, especially during periods of market stress when investors may need to act quickly or rebalance.

How the fund actually generates returns

Rather than trying to predict the direction of interest rates, First Sentier Investors leans on its scale.

As the largest cash manager in Australia, the firm acts as a significant lender to major financial institutions, which Samuel says allows them to negotiate better terms than smaller peers.

"We focus more on using our scale and having deeper relationships with a narrower group of counterparties, particularly the major banks in Australia and using that to effectively get better margins or better yields on investments than what smaller peers, for example, might otherwise be able to get themselves."

Around two-thirds of the fund sits with major Australian banks. Another 20-25% is in AAA-rated floating rate notes, with the remainder in regional banks. 

The short average maturity of typically one to two months means the fund reprices relatively quickly as interest rate expectations shift.

What about the government guarantee?

The financial claims scheme guarantees bank deposits up to $250,000, which is a benefit for term deposits and savings accounts within that threshold.

A cash fund doesn't carry this same guarantee, but does have strict investment criteria, for anyone comparing the two on a like-for-like basis. 

Given the fund's average maturity and focus on high-quality counterparties, Samuel frames the credit risk as negligible in practice.

“We need to make sure that the investments in the fund are subject to insignificant levels of risk and that they are very high quality well preserved investments...and not subject to any meaningful risk of default.”

Permanent home or parking spot?

Samuel says they aren’t in the business of telling investors to pile into cash. People hold cash for different reasons - a retiree managing income risk will approach it differently to a younger person still building wealth.

However, he says, if you have cash available for whatever reason, and with interest levels at the current rates, it’s worth looking at somewhere to park it that works as hard as possible.

“Being more careful with your cash can make a real difference to your returns. And so if you haven't already, it's a good idea to have a look at a cash fund as an option for maybe helping you get a bit more income out of your cash.”

Managed Fund

First Sentier Cash Fund - Class A

Global Fixed Income

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