Mark Zukerman, director and head of funds management for Vado Private, said the most recent ATO data reveals that SMSFs are holding record levels of cash as assets under management reached $1.01 trillion in the March 2025 quarter.
“With record levels of cash, it’s a clear sign that many investors are looking for safety — though returns on cash are now lower, too,” Zukerman said.
“With greater equity market volatility under the Trump US administration and domestic economic pressures, SMSFs who are worried about losing money are investing in cash that is earning little to no interest. This is a worrying trend given the current inflation rate and low level of interest rates paid on savings currently in Australia.”
He said in the first quarter of 2025, SMSFs increased their cash holdings to $161.6 billion, up slightly from $160.6 billion in December.
“That means 16 per cent of SMSF assets are now sitting in cash. At the same time, the value of their Australian-listed share investments has dropped — falling to $265.6 billion in March, down from $274.7 billion in December, and even lower than $278.8 billion in September 2024,” he said.
Zukerman continued that data from the Reserve Bank of Australia released this month shows that three-year term bank deposit interest rates fell to just 3.15 per cent pa in April 2025, the lowest since September 2022, and down from 3.25 per cent pa in March 2025. Online savings accounts returned just 1.55 per cent pa to savers, down from 1.80 per cent a year earlier.
“Inflation-adjusted returns on bank online savings accounts are now well below zero, and term deposit rates aren’t much higher. The reality for cash investors is that they are earning next to nothing on their money,” he said.
“Even worse, savings rates could fall more this year if the RBA cuts official rates again, which is likely given an expected slowdown in economic growth across the globe.”
He said markets are increasingly pricing in RBA rate cuts later in 2025 due to slowing economic growth and the major banks are pre-empting this by lowering what they offer savers, especially for three- and six-month term deposits.
“In this environment, private credit investments could do well given they typically offer a healthy margin over the cash rate,” Zukerman said.
“However, fixed income investments accounted for just $11.7 billion of SMSF assets with another $7.1 billion invested in loans, accounting for just 1.8 per cent of total SMSF assets.”
He added that SMSFs would benefit from a greater allocation to private credit and these investments have historically offered attractive yields at between 8 and 10 per cent pa, which is attractive to investors seeking income, particularly those in retirement.
“Retirees relying on interest income may see reduced real returns over the next six–12 months. Private credit can provide much greater stability than equities and higher returns than corporate bonds,” he said.
