With savings accounts providing interest that’s lower than the inflation rate, should you be holding your cash in the BetaShares Australian High-Interest Cash ETF (ASX: AAA
)?
About ASX ETFs
ETFs are investment funds that are listed on a securities exchange. They can be ‘managed funds’ or ‘index funds’, or in other words, active or passive.
Typically, ETFs give an investor exposure to many different shares or assets with a single purchase, offering one of the quickest and easiest methods of achieving diversification. The Best ETFs website has a list of Australian ETFs.
Positives Of The AAA ETF
There are several reasons why the Australian High-Interest Cash ETF could be a better option than sticking your cash in a simple savings account.
First of all, the interest rates earned are higher than what you’d get with most savings accounts or term deposits. The 12-month distribution yield to 30th June 2019 was 2.0% and the current interest rate earned on the fund’s bank deposits is 1.51% after management costs.
AAA invests in a number of deposit accounts across National Australia Bank Ltd
(ASX: NAB), Bankwest, which is owned by Commonwealth Bank of Australia (ASX: CBA) and ME Bank
, an online-only bank.
The main benefit of this ETF versus a term deposit is that the ETF provides greater flexibility for essentially the same interest rate. Taking your money out of a term deposit early can mean losing all interest, whereas the AAA ETF can be bought and sold like shares and pays a monthly distribution.
The Negatives
Like all ETFs, AAA comes with management fees – in this case, 0.18% per year. While this is a low fee compared to most other ETFs, the fee is quite high as a percentage of the interest earned.
If you’re going to invest in this ETF, know that it’s not going to return you anything exciting, it’s simply a diversification strategy with a better interest rate than a bank account.
Having said that, if you’re willing to look outside the big four banks, it is still possible to find interest rates on a savings account of more than 2%. For that reason, I’d have to say this ETF doesn’t seem like the best option, although I’d take it over a term deposit.
For our number one ETF pick, check out the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
