Are these the best high interest cash ETFs in Australia?
Exchange traded funds can hold cash and similar securities with returns related to interest rates. These types of exchange traded funds tend to pay out monthly distributions and have some similarities to a savings accounts.
What are the benefits of a cash ETF?
High interest cash ETFs provide exposure to Australian cash deposits. These instruments invest in cash securities and keep funds in bank deposit accounts.
With large sums of money to offer, the ETF issuers might be able to attract higher interest rates than those available to individual savers. Cash ETFs usually pay regular income distributions to investors, accounting for most of the returns rather than the ETFs appreciating themselves.
To receive the monthly distribution, the investment in the ETF needs to be made before the ex-dividend date. However, the funds don’t need to be locked up for longer time periods, which generally applies to other cash options such as term deposits. Unlike many savings accounts, cash ETFs don’t come with additional terms or specific interest rates only for new customers.
Discover the high interest cash ETFs in Australia
ETF Name | Ticker | Stock Price | Managed Expense Ratio | Year to Date | Funds under Management |
|---|---|---|---|---|---|
$50.11 | 0.18% | 3.24% | $3.28b | ||
$100.17 | 0.07% | 3.22% | $719.21m | ||
$100.85 | 0.12% | 3.30% | $301.17m |
Stock price data as of 6 November 2023, YTD data as of 31 October 2023, expense ratio and funds under management data as of 30 September 2023. Sources: Stake, Google Finance, ASX Investment Products - September 2023.
*The list of funds mentioned is ranked by funds under management (FUM). When deciding what ETFs to feature, we analyse the financials, recent news, the state of the industry, and whether or not they are actively traded on Stake.
How have these ASX cash ETFs performed?
Ticker | 1-Year Total Return | 3-Year Total Return (ann.) | 5-Year Total Return (ann.) |
|---|---|---|---|
AAA | 3.66% | 1.59% | 1.51% |
BILL | 3.66% | 1.37% | 1.29% |
ISEC | 3.77% | 1.48% | 1.43% |
Data as of 30 September 2023. Sources: Stake, Google Finance, ASX Investment Products - September 2023.
Which is the best cash ETF in Australia this year?
1. Betashare Australian High Interest Cash ETF ($AAA)
Funds under management (as of 30/09/2023): $3.28b
Stock price (as of 06/11/2023): $50.11
Stake Platform Bought / Sold (1 Jan 2023 - 06 Nov 2023): 72% / 28%
The Betashares Australian High Interest Cash ETF intends to provide investors with exposure to cash deposits. It pays monthly income distributions that aim to exceed the 30-day Bank Bill Swap Rate (BBSW), after considering deductions for fees and expenses. Bank deposit accounts maintained by National Australia Bank ($NAB), Bendigo and Adelaide Bank ($BEN), Bank of Queensland ($BOQ), Rabobank, Bank of Tokyo-Mitsubishi, JPMorgan Chase ($JPM) and Citibank ($C) are used by this ETF.
As at 3 November 2023, the AAA ETFs bank deposits earned an interest rate of 4.19% per annum and the twelve month distribution yield was 3.4%.
2. iShares Core Cash ETF ($BILL)
Funds under management (as of 30/09/2023): $719.21m
Stock price (as of 06/11/2023): $100.72
Stake Platform Bought / Sold (1 Jan 2023 - 06 Nov 2023): 64% / 36%
The iShares Enhanced Cash ETF aims to give investors exposure to the S&P / ASX Bank BIll Index by holding short-term money market instruments. These instruments can be sold on a same day basis, providing BILL with liquidity. They can include a range of cash-like investments such as prime bank bills, cash management trusts, commercial paper and term deposits, which have short-term maturities. Bank deposit accounts maintained by Royal Bank of Canada ($RY) and Sumitoto Mitsui Banking Corporation ($SMFG) keep some of the funds.
The BILL ETF pays out monthly distributions and has a twelve month trailing yield of 3.46% as at 2 November 2023.
3. iShares Enhanced Cash ETF ($ISEC)
Funds under management (as of 30/09/2023): $301.17m
Stock price (as of 06/11/2023): $100.85
Stake Platform Bought / Sold (1 Jan 2023 - 06 Nov 2023): 53% / 47%
The iShares Enhanced Cash ETF has a similar setup to BILL, but its strategy is to outperform the S&P / ASX Bank BIll Index. ISEC has a portfolio of high-yielding short-term money market instruments and mentions also investing in floating rate notes.
As at 3 November 2023, 17.89% of its holdings were in corporate bonds. The following banks keep some of the funds, Royal Bank of Canada ($RY), Australia and New Zealand Banking Group ($ANZ) and Sumitoto Mitsui Banking Corporation ($SMFG).
The ISEC ETF pays out monthly distributions and has a twelve month trailing yield of 3.65% as at 2 November 2023.
Why invest in a cash ETF?
Some might use cash ETFs to get returns from funds already in their trading accounts or as place to keep funds during volatile periods in the stockmarket. It can be an alternative rather than opening another savings account, having cash locked up for months in a term deposit or keeping with up various terms held by bank deposit accounts.
It depends on your investment objective, cash ETFs don’t have the same capital growth potential as share ETFs, but can be a useful tool for investors in a high interest environment.
Frequently asked questions about cash ETFs?
How does a cash ETF work?
The ETF issuers pool investors’ funds and invest them in cash and cash-like securities at financial institutions. Banks such as Commonwealth Bank ($CBA) or Westpac ($WBC) often pay a premium for these large sums, which can enable the issuers to gain returns above the average interest rate for the funds.
For example the AAA ETF looks at instruments related to the BBSW, which is used as a benchmark to price short-term bank papers that mature between one and six months. These types of products are generally not available to retail investors.
One cash ETF would spread their cash across several institutions and instruments, which can offer different interest rates and not all of them will exceed the RBA’s cash rate. These allocations will also change over time, as the financial instruments mature - similar to a term deposit reaching its end date.
The ETF issuer then takes out management fees to account for their role maintaining the product. After receiving interest payments from the various banks, the ETF issuer pays out a monthly dividend to everyone, which depends on the amount the individual has invested in the ETF.
Are cash ETFs a good investment?
Cash ETF returns tend to be close to the interest rate. They are often seen as an alternative to term deposits or high interest savings accounts and sometimes could provide a greater rate, but can’t guarantee a specific rate. They are also quite liquid and don’t come with additional obligations to earn a monthly distribution.
Unlike shares, neither interest earnings from bank accounts nor cash ETF distributions benefit from franked dividends. As with any investment, there are still risks.
The Australian government does provide protection for bank deposit accounts of up to $250,000 for certain institutions, which does not apply to cash ETFs. It depends on the particular circumstances of an investor, but there are multiple options to take advantage of higher interest rates and earn more on your savings.
This does not constitute financial product advice nor a recommendation to invest in the securities listed. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking appropriate financial or taxation advice before investing.
Megan is a markets analyst at Stake, with 7 years of experience in the world of investing and a Master’s degree in Business and Economics from The University of Sydney Business School. Megan has extensive knowledge of the UK markets, working as an analyst at ARCH Emerging Markets - a UK investment advisory platform focused on private equity. Previously she also worked as an analyst at Australian robo advisor Stockspot, where she researched ASX listed equities and helped construct the company's portfolios.
