The Reserve Bank of Australia (RBA) has already cut the cash rate multiple times in 2025 and I wouldn't be surprised to see at least one more rate cut in the next year. With this economic backdrop, I think it's the right call to look at S&P/ASX 200 Index (ASX: XJO) shares over term deposits.
Of course, term deposits are still effective at protecting capital and generating a bit of passive income. But, the level of yield on offer is now lower than it was last year.
I can understand why investors would not want to go from 'safe' term deposits to a somewhat higher-risk ASX dividend share like an ASX mining share.
That's why I think the businesses APA Group (ASX: APA) and Chorus Ltd (ASX: CNU) are both compelling options.
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Defensive earnings
Both of the ASX 200 shares I just mentioned are infrastructure-style businesses with a strong level of demand each year and good prospects for further growth.
APA owns a portfolio of energy assets across Australia, including a major network of gas pipelines. It's also invested in other gas assets, renewable energy generation, and electricity transmission. The vast majority of its revenue is linked to inflation, which provides pleasing organic growth for its top line.
Chorus provides telecommunications infrastructure throughout New Zealand. It has invested significantly in a fibre network, and Chorus has agreed with the Commerce Commission and Crown Infrastructure Partners that data traffic through its core network supporting copper and fibre broadband at any one time must not exceed more than 90% of network capacity.
The New Zealand company says that even as New Zealand's data usage continues to grow, its network will always have at least 5% more than it needs. With traffic currently less than 70% of the capacity available, there is plenty of room for growth.
In my view, both APA and Chorus tick the box for defensive earnings.
Better yield
Both ASX 200 shares have good prospects for earnings growth, and they're currently offering very pleasing yields for investors.
Payouts are not guaranteed, of course, but the FY25 payouts were compelling and sizeable for investors focused on income.
In the 2025 financial year, APA decided to pay a distribution per security of 57 cents, which translates into a trailing distribution yield of 6.4%.
Chorus also paid a pleasing amount of passive income to investors. The board of directors decided on an annual payout of NZ 57.5 cents per share. That translates into a dividend yield of 6.2%.
Payout growth
The last positive is payout growth. Payments we receive from term deposits are fixed – the payout is guaranteed, but there's no prospect of organic growth.
ASX 200 shares can increase their payout and send cash our way each year.
APA is expecting to increase its FY26 payout to 58 cents per security, representing a forward distribution yield of 6.5%, which I think represents a very good yield.
Chorus is expecting to increase its annual payout to NZ 60 cents in FY26, which would represent a forward dividend yield of 6.4%.
If those guided payouts become reality, they would provide significantly more passive income than what term deposits are now offering.
