Last week, the S&P/ASX 200 Index (ASX: XJO) entered a correction, and the Nasdaq Composite Index (NASDAQ: IXIC) entered a bear market. ASX investors may be accumulating cash holdings to take advantage of lower share prices. Investors may wish to park their cash in ASX cash ETFs.
Investors may have accumulated cash by selling down existing investments or saving their wages. They may be looking to buy shares, but waiting for lower prices. Alternatively, they may wish to take some time to do more research.
During this period, it's important to consider where to keep their cash. With the cash rate still at 4.10%, there are many options to earn an attractive return while they wait to invest in the stock market. These include savings accounts, transaction accounts, term deposit and cash exchange-traded funds (ETFs).
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Maximise returns and flexibility with ASX cash ETFs
Term deposits, where an investor's money is locked away for a fixed period, typically offer superior returns to traditional savings or transaction accounts. While several term deposits in Australia offer up to 4.95% interest, they often come with restrictive conditions. This can cause investors to receive a return that is much lower than the advertised rate.
For example, sometimes, higher interest rates are only available for balances over a certain amount. 'Honeymoon rates', whereby higher interest rates are offered for a short period before switching to a lower rate, are also common. Additionally, penalty interest may be charged if the funds are withdrawn before the end of the defined term deposit period. This can be very restrictive for investors wanting to withdraw cash to buy shares when an opportunity arises.
ASX cash ETFs, which are traded on the ASX like shares and other ETFs, overcome many of these disadvantages. Most importantly, like all ETFs, they are extremely liquid investments that can be bought or sold at any time during market trading hours. This allows investors to redeem their investment at any time without incurring a penalty.
Investors looking to generate an attractive return with low-risk exposure while avoiding the disadvantages of term deposits should consider the following two ETFs.
BetaShares Australian High Interest Cash ETF (ASX: AAA)
BetaShares Australian High Interest Cash ETF provides exposure to Australian bank deposits, with distributions that exceed the 30-day Bank Bill Swap Rate (BBSW). Unlike a term deposit, there is no need to open a bank account to make this investment. As of 28 February 2025, this ETF offered a trailing yield of 4.4%. Distributions are paid monthly. Its management expense is relatively low at 0.18%. Those wanting to maximise flexibility with their cash investments while locking in an attractive return should consider this ETF.
iShares Core Cash ETF (ASX: BILL)
iShares Core Cash ETF tracks the performance of the S&P/ASX Bank Bill Index. With 58 holdings, it provides exposure to a diversified portfolio of short-term money market instruments. The fund is extremely liquid, holding only investments that can be sold on a same-day basis. As of March 2025, the yield was 4.43%. Like BetaShares Australian High Interest Cash ETF, it also pays monthly distributions. However, its management fee is lower at just 0.07%.
