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3 ASX dividend shares perfect for replacing your term deposit

Term deposits used to be a staple of retirees’ portfolios – and really any investor who wanted to grow their wealth in a conservative manner. Safe inside a bank and typically guaranteed by the government (up to $250,000), term deposits are the ultimate ‘safe’ investment.

Unfortunately, today’s record low interest rates have meant that the power of these investments have waned. These days, you’d be lucky to get a rate even close to 2%, meaning when you account for inflation, your money is basically going nowhere.

That’s where ASX dividend-paying shares come in. Dividend shares can offer rates far above 2% with the possibility of capital growth thrown in as well. Sadly, the sharemarket is also a highly volatile place, and risk-averse investors are normally loath to place too much capital at the whims of the market.

So here are three ASX shares that I think are perfect replacements for your term deposits.

Transurban Group (ASX: TCL)

Transurban owns and operates the biggest network of tolled roads in the country, including several vital arterial routes in our capital cities like Sydney. Toll roads are used by individuals and businesses in all economic conditions, good or bad.

With our growing population, it’s hard to see demand going anywhere but up in the coming years and decades. These two factors make Transurban’s earnings (and dividends) highly defensive in my view, and therefore a great place to invest your term deposit capital. Transurban shares offer a 3.88% yield on current prices.

Sydney Airport Holdings Pty Ltd (ASX: SYD)

Another great defensive stock for income investors is Sydney Airport. Owning the largest airport in Australia (and for now, the only one in Sydney) gives this company enormous pricing power and earnings certainty. Although the new Badgerys Creek airport is set to open this decade, I don’t think it will negatively affect Sydney Airport’s earnings too drastically.

I think its fairly safe to say we’ll be needing air travel for the foreseeable future and I think this makes Sydney airport a great defensive share to own today, in my view. On current prices, Sydney Airport shares offer a 4.33% dividend yield.

APA Group (ASX: APA)

APA group owns the largest gas supply network in the country. Gas is a resource most of us need for heating, cooking and the occasional barbeque, as well as having some commercial/industrial applications.

Owning vital infrastructure like a gas network enables APA to extract predictable rental profits every year, which will typically be able to keep up with inflation too. Therefore, I think this is another defensive stock that would be a perfect replacement for a term deposit. APA shares currently offer a dividend yield of 3.54%.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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