Term deposits can be a good way to protect the capital and create passive income. However, S&P/ASX 200 Index (ASX: XJO) shares look much more compelling to me for a variety of reasons.
Firstly, while the downside of term deposits is limited, so is the upside. There is no potential growth at all, the return is the fixed interest rate. Plus, with the RBA rate cuts happening, new term deposits are now offering lower rates than they were a year or two ago.
ASX 200 shares can pay dividend yields that are similar (or better) than term deposits. Most importantly, the companies can grow earnings over time, sending the share price and passive income higher with it.
With that in mind, the below two ASX 200 shares are more attractive to me than term deposits.
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Transurban Group (ASX: TCL)
Transurban is a major toll road business, with assets in both Australia and North America.
The fall in the RBA interest rate is a major positive for Transurban. It can reduce the cost of debt (boosting profitability) and it may also lead to investors being willing to value the cash flow at a higher multiple.
I'm expecting Transurban's underlying earnings to continue growing thanks to a combination of both growing traffic (including new projects such as the West Gate Tunnel project) and rising toll prices.
In FY25, the ASX 200 share reported a 2.2% increase of overall average daily traffic (ADT). Sydney ADT rose 2.7%, Melbourne ADT grew 1.2%, Brisbane ADT rose 1.5% and North America ADT increase 6.4%. This helped proportional toll revenue grow 5.6% and proportional operating profit (EBITDA) rising 7.4%.
Transurban is expecting to grow its distribution by 6% to 69 cents per security in FY26. This translates into a forward distribution yield of 4.8%.
Chorus Ltd (ASX: CNU)
Chorus is not a well-known business, but it plays an important part in the New Zealand economy.
It owns a significant fibre cable network in New Zealand. After a period of building its network, it's now reaching a point where it's spending less on constructing and the cash generation can now flow through the business.
With higher cash flow, the ASX 200 share can pay growing dividends to shareholders, which is pleasing for income-focused investors.
In FY25 the business grew its annual dividend per share by 21% year-over-year to NZ 57.5 cents.
The ASX 200 share has provided guidance that it expects to grow its annual dividend by 4.3% in FY26 to NZ 60 cents per share. At the current Chorus share price, that represents a forward dividend yield of 6%. Operating profit (EBITDA) is expected to grow by between approximately 1% to 3.5%.
