The RBA interest rate has jumped this year, allowing savers to achieve term deposit interest rates that start with a 5. However, I'd prefer to invest in certain ASX dividend shares for a couple of key reasons.
Firstly, I'd highlight that this is probably (close to) the peak interest rate for this cycle of rate rises. That means this could be the best interest rate that savers can get and term deposit rates in 12 months could be lower if there are RBA rate cuts next year.
Secondly, we can pick ASX dividend shares that already have a dividend yield similar to (or better than) the term deposit rate, as well as payout growth. Term deposits are stuck paying the same rate, though it is a guaranteed cash return.
As time goes on, I'd expect a good ASX dividend share to pay an increasingly better cash return than term deposits.
Let's look at two ideas based on the above thought process, with dividend yields of more than 5%.
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WCM Global Growth Ltd (ASX: WQG)
This business is a listed investment company (LIC). I really like the LIC structure because it allows for a diversified portfolio to generate investment profits, which can pay a steadily growing dividend.
WCM Global Growth owns a portfolio of between 20 to 40 quality global stocks that have expanding economic moats (strengthening competitive advantages) and business cultures that help unlock the improvement of the economic moat.
With its portfolio net return of an average of more than 15% per year since inception in June 2017, the ASX dividend has consistently increased its annual dividend per share every year since 2019.
It recently upgraded its quarterly dividend guidance to 9.85 cents per share over the next 12 months, which translates into a grossed-up dividend yield of 6.6%, including franking credits, at the time of writing.
Future Generation Australia Ltd (ASX: FGX)
Future Generation Australia is another LIC that focuses on ASX shares.
It's invested in the funds of 16 different leading fund managers, providing significant diversification. Future Generation Australia is indirectly invested in more than 430 underlying shares, delivering strong diversification.
One of the reasons why I like this investment is that it has a much smaller allocation to the large ASX blue-chip shares than the overall ASX share market, so I believe the Future Generation Australia portfolio gives more exposure to ASX growth shares, which could perform more strongly over the long-term.
These fund managers are all working pro bono – for free – to enable Future Generation Australia to donate 1% of its net assets each year to youth-focused charities.
This ASX dividend share started paying shareholders dividends in 2015 and has increased its annual payout every year since then. Its guided FY26 payout of 7.6 cents per share translates into a grossed-up dividend yield of 8%, including franking credits, at the time of writing.
