Term deposits are a very effective way to generate guaranteed passive income. But, their appeal is reducing, in my opinion. S&P/ASX 200 Index (ASX: XJO) shares look to me like a better choice today.
The Reserve Bank of Australia (RBA) cash rate has already been cut twice in 2025. Experts predict that the rate could reduce multiple times over the next 12 months.
Each time the RBA rate is reduced, I'd expect virtually every financial institution to reduce the interest they pay on their term deposit.
But, ASX dividend shares don't cut their dividend just because the RBA has cut rates. Indeed, the two ASX 200 shares below seem likely to grow their dividends for the foreseeable future.
Chorus Ltd (ASX: CNU)
Chorus describes itself as a builder and manager of an open-access internet network. It's also rolling out ultra-fast broadband that should be an ultra-long-term asset. The ASX dividend share also works with various New Zealand phone and broadband providers.
As fund manager L1 has pointed out, it's one of the few regulated digital infrastructure assets that can still be bought on a stock exchange.
Given how the company's infrastructure work is progressing, its profile is changing from a network builder to a network operator. This can help produce strong cash flow and pay shareholders significant dividends.
L1 is predicting that Chorus can continue its dividend growth going into FY26, with a payout of NZ 60 cents per share. This means the ASX 200 dividend share could pay a dividend yield of almost 7%.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Patts is an investment conglomerate that has been operating for over 120 years. I think the ASX 200 share is an excellent choice compared to a term deposit.
I'd describe the company as one of the most defensive ASX 200 shares for dividends because of how it has a portfolio designed to generate resilient cash flow, which in turn can pay for ongoing dividends.
The ASX 200 share has paid a dividend in every year in its 120-year existence and has increased its annual ordinary payout each year since 2000, which is the best record on the ASX.
In terms of sectors it's invested in, the portfolio includes telecommunications, resources, financial services, industrial properties, building products, financial services, agriculture, swimming schools, electrification and plenty more.
I'm expecting continuing dividend growth from the business and it currently has trailing grossed-up dividend yield of 3.5%, including franking credits.
