The question isn't whether to hold cash, it's whether your cash is actually working as hard as it can. Here's how to get the cream on top.
This interview was filmed Wednesday, 10th June, 2026.
Transcript
0:03
Hello and welcome to Live Wire Markets.
0:05
My name is Anna Dadich.
0:06
Today I'm joined by Ben Samuel, Senior Portfolio Manager at Sentier Investors, to unpack the role of cash in portfolios and to discuss their new active cash ETF, ticker FSCF.
0:20
Then a lot of investors automatically roll their money into bank term deposits because it feels safe.
0:25
But how do term deposits compare to cash funds?
0:28
And could investors be leaving money on the table?
0:30
This is something that comes up quite regularly for us comparing term deposits, which is a really common cash investment strategy and cash fund investment.
0:38
And specifically for us, our flagship fund first sent to your active cash fund.
0:42
How do the two compare?
0:44
So we did some work a couple of years ago now, and it's something that we update and refresh regularly now effectively looking at a typical term deposit strategy.
0:52
How's that performed over time?
0:54
What are the features and characteristics of that strategy?
0:57
And then look at an investment in our fund and then we can compare the two and see what comes out of that.
1:03
And so just to quickly talk about that term deposit strategy.
1:06
And so we looked at a typical investor who might be rolling a staggered book of maturity.
1:12
So for example, 12 month term deposit maturing every six months.
1:16
And so they've got a few on the go that they're rolling regularly.
1:19
This is something that people commonly do and this is based on data from the RBA, which publishes a fairly good series looking at advertised deposit rates from the big four banks and Macquarie as well.
1:31
And so we've got a fairly good amount of data there that we can complete a return series for and then compare it to our fund and how it's performed over time.
1:39
And there are a few things that we drew from that analysis.
1:43
One of the first is when does a term deposit do a bit better and when does it struggle versus a fund.
1:49
One example might be COVID period.
1:51
Where say, for example, if you had locked in a 12 month term deposit just before COVID hits and at that point the world is sailing along nicely and all of a sudden disaster strikes and interest rates get cut very swiftly.
2:03
Well, if you've locked in a 12 month rate ahead of that, clearly you're going to do well for a while as interest rates are now much lower, but you're sitting at a higher rate that you've locked in.
2:12
So that was a period of time where we saw the cash fund adjust more quickly to changes in interest rates, whereas the term deposit had the benefit of that locked in higher rate.
2:22
Of course the opposite happened when interest rates started to rise and when monetary policy normalised.
2:28
And then there were also other periods of time where the fund would fare a little bit better, for example, where interest rate expectations of cuts were not delivered as expected.
2:39
So if you're putting on a 12 month deposit that's priced, part of that price includes what's expected to happen in interest rates in the period of head ahead, whether that be rate hikes or rate cuts.
2:50
There are different points in time where one was better than the other, but the overall assessment or observation that we could make was that, well, actually if we looked at it over a medium term basis, they were both fairly similar.
3:02
The fund was a little bit ahead.
3:03
Now I'll be fair, the term deposit data we were relying on was looking at major banks and Macquarie.
3:08
We know most people when they're managing term deposit portfolios, they're typically shopping around, they're looking at other banks and so they might be doing a little bit better.
3:16
And so I think whilst we were comfortably ahead of a term deposit strategy focused on the major banks, if you were a more active term deposit investor, we think it's probably fair to say that the returns would be comparable over a medium term horizon between investment in the fund and active term deposit investor.
3:34
But I suppose we'd make a couple of observations. One, it's a bit of trouble.
3:37
You've got to be maintaining, shopping around, managing that portfolio to get that return outcome rather than just having it sit in the fund and have the manager do it for you.
3:46
And more importantly, and bringing it back to the, the original part of the question.
3:50
And so you know, are you leaving money on the table?
3:53
Maybe, maybe not.
3:54
If you're active, it's probably fine.
3:56
But then something you are not getting paid for is illiquidity.
4:00
So you're locking your money up with a term deposit.
4:02
You don't have access to it. With a cash fund, really the key advantage and the key feature of a cash fund is that it remains liquid.
4:08
They they're both delivering income to investors, but the cash fund is flexible if your plans change, if you need your money, it's available and you need it.
4:16
Obviously that's not the case with a term deposit.
4:19
OK, so let's talk about the rate hikes. So markets are pricing more RBA rate hikes before the end of the year. Instead of guessing exactly where rates will land, how are you preparing the portfolio for that volatility?
4:31
This is something that we call duration management.
4:33
So we can position the portfolio to benefit if rates go up or to benefit if rates go down, for example.
4:40
And that's one way cash managers can generate performance.
4:42
There are two other ways probably that are common for cash managers, which would be credit and liquidity risk.
4:49
So rather than invest in very high rated cash exposure, say for example, like the major banks, to invest with smaller regional banks for example, who might not be as highly rated or international banks and also to sacrifice a little bit of liquidity.
5:05
So rather than have very liquid securities in the portfolio to maybe have slightly less liquid thing, maybe even have a little bit of turn deposit type exposure as well, for example.
5:12
And those are those three things.
5:14
Duration management, credit risk, liquidity risk are three of the primary triggers that managers will use to generate performance.
5:21
or us, we're a little bit unique given our scale.
5:24
We are the largest cash manager in Australia and that means that we're a very significant lender to financial institutions in Australia, particularly the major banks.
5:34
And so for us, generating performance, 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.
5:54
And so we just find that that's a more reliable, predictable way to generate income and performance, rather than to be exposed or constantly relying on our ability to predict the path of interest rates.
6:06
In an environment where equities are volatile and the outlook is uncertain, why would any investor take on market risk when they can earn roughly 5% just sitting in cash? What's your take on that?
6:16
5% is definitely helpful for us.
6:19
I know probably if you've got a mortgage, it's not great seeing cash rates where they are.
6:22
But as a cash manager in the middle of COVID, zero interest rate policies a little bit difficult and cash is not an exciting place to be.
6:30
So certainly cash being much higher is very helpful.
6:34
And I think if you're an investor looking at your portfolio overall, you've got equities, property, infrastructure, you know, a range of different things.
6:43
If the least risky thing in your portfolio is kicking off, well for our flagship fund, for example, the yield's around 5%, that's a pretty great starting point.
6:50
And it creates a high hurdle for then your other investments that they need to clear.
6:55
I suppose the other observation I'd make though, is we're not really in the business of telling people that they should be, you know, get out of equities and buy cash, which, you know, if you're telling people they should hold more cash, it's kind of implied that that's what you're doing.
7:08
They should be selling something else and holding more cash.
7:10
And people have cash for different reasons and they've always got it.
7:14
And if you're a retiree and you're worried about income and capital preservation, you might have a bit more of it.
7:20
If you're a younger person and you're still building wealth or you've got a mortgage or something, you'd not likely to have much of it, but our role really is just to be there.
7:28
If you've got some, you know, there are a few places you can look where to park that cash.
7:33
It could be online savers, it could be term deposits, it could be cash funds like us.
7:37
And really our job is just to say, well, we're here just making it work as hard as possible for you, for the cash that you do have.
For an income investors who has only ever used a Standard Bank account., how does an active cash ETF actually work and what does it offer that a bank account can't?
7:52
So a cash fund or the ETF specifically is a pooled investment vehicle that invests in similar types of investments to what people might hold themselves in cash.
8:02
So that could be bank deposits, term deposits, short dated fixed income securities and floating rate notes, for example.
8:11
And the objective of the cash fund really is to deliver on what we would say the three important properties of cash, that being liquidity, capital preservation and income.
8:23
And so a cash fund is really seeking to optimise for all three of those things.
8:28
Now if I look at the 2 common alternatives for a cash fund being, say, online savings accounts or term deposits, how did we assess that across those three properties or those three objectives of cash?
8:39
Well, a term deposit, for example, is it delivering income - Yes.
8:43
Is it delivering capital preservation - Yes.
8:45
Is it delivering liquidity - Not really.
8:48
You're locking your money up for a period of time.
8:50
So it faces one deficiency there.
8:52
If I'm to look at online savings accounts, are they delivering liquidity - yes, they’re at call.
8:58
Are they delivering capital preservation – yes
9:00
Are they delivering income - generally, yes.
9:04
I would say though, like often, and this is something that's happened to me as well.
9:08
You've we've all signed up to bonus interest accounts and there, there might be terms and conditions you've got to put some money in regularly or something like that.
9:16
I've had this myself where you'll get an email, you've not noticed some small print down the bottom that something's changed.
9:21
You've maybe got to update a payment to qualify for bonus interest and six months go by, you think where's my interest? And you missed the change or the email, right?
9:30
And so I think they can be good for income, but you have to be a little bit careful because the banks do rely on us being a little bit lazy sometimes with cash.
9:38
And so I'd say a qualified yes, in terms of those 3 objectives for an online savings account. A cash fund is really what we see as doing it the best job at optimising all three of those things.
9:50
Something that's liquid through all different types of market environments, that's delivering capital preservation through really defensive investment strategies, and that's also delivering income.
10:01
Walk us through what actually happens inside your fund when the RBA moves. So how quickly does your portfolio reprice? And why does that matter compared to a locked term deposit?
10:12
So if I'm to compare a term deposit with the fund, probably the easiest way to describe this would be to just think about the average maturity of each.
10:20
And so let's take a 12 month term deposit for example.
10:23
If you lock that in today, if interest rate expectations move around, you're not going to see that or experience it until that term deposit matures and then you have a chance to reinvest.
10:33
If you look at a cash fund, the average maturity is typically something like one to two months. So it's a lot shorter.
10:42
That means that the funds will typically reprice and adjust to changes in interest rate expectations much more quickly than a term deposit will.
10:51
What are the risks with investing in a cash fund? Given the government guarantees deposits up to $250,000, is that security worth the trade off?
10:59
So there are two key risks that you need to think about with cash.
11:03
The first is credit.
11:04
The second is liquidity. And so credit, you mentioned the financial claims scheme for, for bank deposits.
11:11
So if you're a, you know, online saver return deposit, for example, under $250,000, you benefit from the government guarantee or the financial claims scheme over that, you don't, but for smaller deposits you do.
11:24
So on the from a credit standpoint, that's a tick for those investment types, excuse me.
11:32
So on credit then what do we do in the fund?
11:34
We don't benefit from the guarantee, but we need to make sure that the investments in the fund are subject to insignificant levels of risk and that they are very, very high quality, well preserved investments.
11:46
And so if I take how our funds is invested at the moment for example and has been for some time, we focus on really credit worthy counterparty.
11:56
So around 2/3 of the fund today is invested with major banks in Australia, which is about as good as it gets in terms of senior exposure to those counterparties.
12:04
20% to 25% would be invested in AAA rated floating rate nights, which would be the best rating available for that type of security in Australia as well.
12:15
And then maybe around 10% or so would be invested in smaller regional banks for example in Australia.
12:21
And so still well rated, very safe, short dated exposures, but slightly less than a major bank.
12:28
And so for us, the overwhelming majority and really all of the investments in the fund need to be very low risk and not subject to any meaningful risk of default.
12:38
The second side of things, liquidity risk is also very important.
12:42
This is probably where we're a little bit different to a term deposit probably in particular.
12:48
Obviously with the term deposit your money is locked away for a cash fund.
12:52
Our investors can come at a moment's notice and ask for their money back.
12:56
And so the fund out, the unlisted fund is T+1. The listed fund as T+2 in in keeping with the convention of the exchange.
13:05
So we need to make sure that we've got, we can convert those investments to cash really readily and really quickly.
13:12
And so again, our focus is on those counterparties in that part of the market, which is the most liquid part and that is the major bank, particularly the major bank NCD market.
13:21
And so that's where we focus our exposures.
13:24
Should investors look at active cash as a permanent home for their money or just a temporary parking spot? Final question.
13:29
Again, we're not here to convince people that they should hold more cash or hold less cash that I'll just say if you've got some for whatever reason and for however long you've got it, at interest rate levels where they are now around 5%.
13:46
Being more careful with your cash can make a real difference to your returns.
13:50
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.
13:56
OK, excellent. Thanks Ben for sitting down with Live Wire today and sharing your insights.
14:00
Thank you.
14:01
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With yields sitting around 5%1, 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 deposit2."
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 notes3, 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.”
Article republished with permission. Read the article written by Anna Dadic on Livewire Markets’ website: https://www.livewiremarkets.com/wires/how-to-make-your-cash-work-harder-in-a-5-rate-environment
1 Source: First Sentier Investors. As at time of filming - 10 June 2026
2 An investment in a Managed Fund or an ETF does not receive the benefit of any government guarantee. There may be brokerage fees payable when buying or selling an ETF in Australia.
3 AAA-rated floating rate note is a low-risk debt security that pays a variable interest rate. The "AAA" indicates the highest possible creditworthiness and lowest default risk, usually awarded to government-backed or heavily collateralized (asset-backed) bonds. The "floating" feature means the payouts adjust with benchmark rates, protecting investors from interest rate risk. A rating of AAA is the highest possible credit rating, while a D rating is the lowest.
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