Interest rate securities
Create a reliable income stream
In an uncertain world, an investment that generates a reliable regular income can be very attractive — especially if you're retired or approaching retirement. Interest rate securities offer the safety of a reliable income stream with higher returns than you'd typically earn from a bank account or term deposit. But remember, unlike bank deposits, they don't come with a government guarantee.
Like corporate bonds, interest rate securities are issued by companies who pay you interest. But unlike bonds, they are traded on the ASX, making them much more accessible for individual investors.
Some interest rate securities may also have the potential for capital growth, although their primary aim is to provide investors with a source of income.
What is an interest rate security?
Like a bond, an interest rate security is essentially a loan to a company. In return for your set investment, you receive either interest or dividends. The interest rate can either be fixed or floating.
Depending on the type of security you choose, your investment may also be converted to shares in the issuing company in predefined circumstances, so it pays to read the terms and conditions before you buy.
Earn a reliable income
An interest rate security gives you a regular, predictable income stream — making them particularly attractive to SMSFs and retirees.
Get your money back
Generally, once your interest rate security matures, the company or institution who issued it to you will repay your original amount in cash, or occasionally, in shares.
Trade on the ASX
Because interest rate securities are traded on the ASX, you can sell all or some of your investment at any time. That makes them far more flexible than, for example, a term deposit where your money is locked up for a predefined period.
Earn more after tax
Like shares, some interest rate securities give you franking credits along with your interest payments — like a credit for tax the company has already paid. That can help to lower your overall tax bill, producing an even better return after tax.
While bondholders generally receive their money back before shareholders if something goes wrong, interest rate securities are not guaranteed. So if security is your number one priority, you may prefer a cash investment, such as a term deposit.
Interest rate risk
An unfavourable movement in interest rates could make your investment much less attractive. If it pays a variable interest rate, then a fall in market rates might deliver a lower income than you expect. And if interest rates rise, a fixed rate security could suddenly look much less appealing.
Trading with InvestSMART
When you're ready to trade, simply:
- Download, print and send us your trading account application form, plus a copy of your ID documents.
- To trade online with us, you'll need to be CHESS-sponsored by CMC Markets Stockbroking and open a cash account. Download, print, and send us your Cash Account Application form.
- As soon as your account is open, we'll send you a confirmation email, and you can start trading. It's as easy as that.