In recent years, with interest rates at record low levels, term deposits have been out of favour with investors and ASX shares have ruled the roost.
However, with rates now rising, demand for term deposits has been increasing.
And while term deposits are certainly great for those that are risk averse, the potential returns on offer from ASX shares arguably make them the better option for income investors.
For example, Commonwealth Bank of Australia (ASX: CBA) is currently offering 4% per annum on 12-month term deposits. Whereas the share market has historically provided investors with a 10% per annum return.
Furthermore, the share market provides a combination of potential income and capital gains through dividend shares, which is something that term deposits cannot offer.
But which ASX dividend shares would be good alternatives to term deposits? Listed below are two shares that analysts believe offer the winning combination of income and capital gains in spates.
Telstra Group Ltd (ASX: TLS)
A note out of Morgans reveals that its analysts are expecting a 17 cents per share fully franked dividend from this telco giant in FY 2023.
While this equates to a fully franked yield only marginally better than a term deposit at 4.1%, the broker also sees plenty of upside for its shares with its add rating and $4.70 price target.
So, with this ASX share currently fetching $4.18, this suggests it could rise 12.5%, which brings the total potential 12-month return to 16.6%. This is more than quadruple the return on offer with term deposits.
Westpac Banking Corp (ASX: WBC)
According to a note out of Goldman Sachs, its analysts have a conviction buy rating and $27.74 price target of this banking giant's shares. Based on the latest Westpac share price of $22.67, this implies potential upside of 22% for investors over the next 12 months.
In addition, Goldman expects fully franked dividends of 147 cents per share in FY 2023 and then 156 cents per share in FY 2024. The former equates to a 6.5% yield, which brings the total potential return to 28.5%.
That's 24.5% greater than the return you would get buying a term deposit.
