Here's how much cash returned in FY24 compared with investing in shares

If you have large amounts of cash in the bank, you'll want to read this.

Australian notes and coins symbolising dividends.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One of the sharpest changes in our financial landscape, and for anyone investing in ASX shares, has been the change in interest rates over the past two years or so.

This will come as no surprise for anyone carrying the burdens of a mortgage, of course.

But one of the upsides of the Reserve Bank of Australia (RBA) raising the cash rate from 0.1% in April 2022 to today's 4.35% has been the steep rise in returns one can get from simply holding cash in the bank.

Prior to 2022, most Australians would have become used to getting a pittance from keeping their hard-earned dollars in a savings account or term deposit.

After all, the last time the cash rate was above 4.3% was late 2011. And that didn't even last that long. Australians spent almost all of the 2010s with an interest rate below 3%. Between 2016 and 2022, it was under 2%.

But today, with the cash rate at 4.35%, Australians can expect to receive an interest rate of 5% or even higher if they put their money in a competitive savings account or term deposit.

A safe 5% return on your cash is nothing to turn one's nose up against. After all, bank accounts with up to $250,000 are essentially risk-free, thanks to the Federal Government's 'Financial Claims Scheme' banking guarantee.

But with the returns from cash investments at this historical high, are ASX shares still a better investment? That's what we'll be analysing today. And given we've recently bid an old financial year farewell and welcomed in a new one, it's a great time to do just that.

How did cash compare to investing in shares in FY24?

Luckily, a recent edition of AMP chief economist Shane Oliver's 'Oliver's Insights' reveals the answer.

According to the newsletter, Oliver estimated that "two years of rate hikes" resulted in cash investments returning an average of 4.4% over the 2024 financial year.

However, Oliver also estimated that the returns from the Australian share market came in at 12% for FY24. Oliver stated that ASX shares benefitted from "the positive global lead but were relative underperformers again on the back of China worries, the RBA lagging in moving to cut rates and the greater sensitivity of Australian households to higher rates".

That "positive global lead" refers to the performance of international shares. Oliver noted, "Global shares returned 21% in local currency terms over 2023-24, with a slight rise in the $A cutting this to a still strong 20% in $A terms".

So an unequivically spectacular year for Australian stock market investors. Someone with $100,000 in ASX shares would be richer to the tune of $7,600 than if they kept that $100,000 in cash investments over FY24. And that's without taking into account the benefits of franking credits from ASX shares, either.

Still, it's not all good news from Oliver. To conclude with, he noted that "The risks regarding equity markets are higher than a year ago". That's thanks to geopolitical risks, and dangers that the current high interest rate environment could trigger a recession.

Let's hope FY2025 proves as lucrative for Australian investors as FY24 did.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Personal Finance

A guy wearing glasses tries to show off his muscles.
Personal Finance

5 ways ASX shares investors define financial success

What does financial success mean to you?

Read more »

A man wearing only boardshorts stretches back on a deck chair with his arms behind his head and a hat pulled down over his face amid an idyllic beach background.
Personal Finance

How I'd aim to build a $75,000 income from ASX shares and never work again!

ASX shares can be a great place to generate investment income.

Read more »

Tax time written on wooden blocks next to a calculator and Australian dollar notes.
Tax

Don't forget your franking credits this tax time

Franking credits form an important part of your returns from your dividend shares.

Read more »

Tax time written on wooden blocks next to a calculator and Australian dollar notes.
Tax

Own ASX shares? Here are 3 investing tax deductions you may not be aware of

Make sure you don't miss out on any of the tax breaks available to owners of ASX shares this tax…

Read more »

A golfer celebrates a good shot at the tee, indicating success.
Tax

Tax time: If you have ASX shares, here's what you need to know about franking credits

Franking credits are vital to your returns from ASX shares.

Read more »

A woman in a hammock on her laptop and drinking a smoothie
Tax

How to turn your stage 3 tax cuts into $11,396 buying ASX 200 shares

Do you plan to invest your stage three tax cuts in ASX shares?

Read more »

A young well-dressed couple at a luxury resort celebrate successful life choices.
Personal Finance

How to become a millionaire on a $70,000 salary

Want to become a millionaire? Albert Einstein has some helpful advice.

Read more »

three businessmen high five each other outside an office building with graphic images of graphs and metrics superimposed on the shot.
Personal Finance

3 personal finance tips to help anyone grow richer

Our portfolios can do better with the right financial foundations.

Read more »