What You Need to Know About Fixed-Income Investments

Fixed-income investments are popular for Australians looking for stable returns and lower-risk financial strategies. 

Whether you are approaching retirement, seeking diversification, or simply want predictable income, fixed-income assets can be a reliable option. But what exactly do they entail, and how do they fit within the current Australian financial landscape?

This guide explains everything you need to know about fixed-income investments, including how they work, their benefits, risks, and the latest Australian regulations affecting this investment type in 2025.

Let’s Get Straight to the Point

For those short on time, here’s a quick summary:

• Fixed-income investments generate steady returns through regular interest payments.
• Common types include government bonds, corporate bonds, term deposits, and money market funds.
• Best for: Risk-averse investors, retirees, and those looking for portfolio diversification.
• Pros: Stability, predictable income, and potential tax benefits.
• Cons: Lower returns than stocks, interest rate risks, and liquidity limitations.
• 2025 Australian regulations: The bond market remains strong, with rising interest rates impacting returns.

What Are Fixed-Income Investments?

Fixed-income investments provide a steady stream of income through regular interest payments. These investments are typically lower-risk than stocks and are used to balance portfolios.

How Fixed-Income Investments Work

• You invest a set amount of money in a fixed-income asset.
• The issuer (government, corporation, or financial institution) pays interest (a coupon) regularly.
• At the end of the investment period (maturity date), you receive your original investment amount (principal) back.

Fixed-income investments can be structured differently depending on the type of asset chosen. Some pay interest annually, while others provide monthly or quarterly income. 

Some investors ladder their investments, purchasing bonds or term deposits with staggered maturity dates to maintain liquidity while securing fixed returns.

Who Are Fixed-Income Investments Best For?

Fixed-income investments cater to several types of investors:

1. Retirees – Those who have finished working years and require a reliable income stream to cover their living expenses.
2. Risk-Averse Investors – People who prefer financial security and are unwilling to expose themselves to the volatility of shares.
3. Diversified Investors – Those who wish to balance riskier stock investments with safer, predictable returns.

These investments form the backbone of many conservative portfolios because they help protect capital while providing income.

Types of Fixed-Income Investments in Australia

Government Bonds

The Australian government issues government bonds, one of the safest fixed-income options.

Types of Government Bonds

• Treasury Bonds (T-Bonds) – Offer a fixed interest rate with maturity terms ranging from 2 to 30 years.
• Treasury Indexed Bonds (TIBs) – Adjust interest payments based on inflation.
• Semi-Government Bonds – Issued by state governments and offer slightly higher yields than federal bonds.

Advantages of Government Bonds

• Low risk: Backed by the Australian government, reducing default risk.
• Regular income: Pays interest at set intervals.
• Liquidity: Can be traded on the ASX before maturity.

Downsides of Government Bonds

• Lower returns than shares and some corporate bonds.
• Interest rate sensitivity: When rates rise, bond prices fall.

2025 Update: Due to rising interest rates, long-term Treasury bonds offer higher yields, making them more attractive for income-focused investors.

Corporate Bonds

Corporate bonds are a popular fixed-income investment where companies borrow money from investors and pay periodic interest in return.

Types of Corporate Bonds

• Investment-grade bonds – Issued by financially stable companies with lower risk.
• High-yield bonds (junk bonds) – Offer higher returns but have greater default risk.

Advantages of Corporate Bonds

• Higher yields than government bonds.
• Diversification: Bonds from different industries spread risk.

Downsides of Corporate Bonds

• Credit risk: Some companies may struggle to repay debts.
• Lower liquidity: Some bonds are harder to sell before maturity.

2025 Trend: Australian corporate bond markets remain stable, with major banks and mining companies issuing new bonds at attractive rates.

Term Deposits

Term deposits (similar to certificates of deposit in other countries) are fixed-term investments banks and credit unions offer.

Key Features

• Guaranteed returns at a fixed interest rate.
• Terms range from 1 month to 5 years.
• Protected under the Financial Claims Scheme (FCS) (up to $250,000 per institution).

Advantages of Term Deposits

• Security: Deposits are government-backed (up to $250,000).
• Fixed returns: You know exactly how much you’ll earn.
• No market fluctuations: Interest rates remain unchanged once locked in.

Disadvantages of Term Deposits

• Lower returns than other assets.
• Limited access to funds: Early withdrawals may incur penalties.

2025 Rates: Term deposit interest rates have increased slightly in response to inflation, making them more competitive than savings accounts.

Money Market Funds

Money market funds invest in short-term fixed-income securities like Treasury bills and bank deposits. They offer higher liquidity but lower returns.

Ideal for: Investors wanting a low-risk, short-term place to store cash while earning some interest.

Understanding Fixed-Income Risks

1. Interest Rate Risk

When interest rates rise, existing bonds lose value because new bonds offer higher rates.

Example:

• You own a 10-year bond paying 3% interest.
• New bonds are issued at 4% interest.
• If you sell your bond before maturity, investors will pay less.

2. Inflation Risk

Inflation reduces the purchasing power of your fixed returns. Inflation-linked bonds (TIBs) can help offset this risk.

3. Credit Risk

Corporate bonds carry the risk of default. If a company struggles financially, it may fail to pay interest or repay your principal.

Tip: Stick to high-credit-rated bonds for safety.

How to Invest in Fixed-Income Assets in Australia

Fixed-income investments can be accessed through government bond programs, the ASX, managed funds, and term deposits. Each option offers different levels of security, liquidity, and returns.

Buying Bonds

Direct from the Government

• Treasury Bonds and Treasury Indexed Bonds are available through the Australian Office of Financial Management (AOFM) or via the ASX.
• They offer low-risk and stable returns, making them ideal for conservative investors.

On the ASX (Exchange-Traded Bonds)

• Bonds can be traded like shares on the Australian Securities Exchange (ASX).
• Includes both government and corporate bonds, allowing investors to buy and sell before maturity.

Bond Funds (ETFs & Managed Funds)

• These funds invest in multiple bonds, offering diversified exposure without the need to manage individual assets.
• Available through exchange-traded funds (ETFs) or mutual funds.

Term Deposits and Money Market Investments

Banks & Credit Unions

• Term deposits offer fixed interest rates and are protected up to $250,000 under the Financial Claims Scheme (FCS).
• Best for investors seeking security with no market risk, though funds are locked until maturity.

Online Platforms & Fintech Services

• Fintech companies and neobanks offer higher-yield term deposits with competitive interest rates.
• Money market funds provide short-term, low-risk investment options with greater liquidity than term deposits.

Choosing the Right Option

• For stability → Government bonds or term deposits.
• For trading flexibility → Exchange-traded bonds (XTBs).
• For diversified exposure → Bond ETFs and managed funds.
• For short-term access → Money market funds.

Australian investors can secure steady returns while managing risk effectively by choosing the right fixed-income strategy.

2025 Australian Regulations & Tax Implications

1. Financial Claims Scheme (FCS)

The Financial Claims Scheme (FCS) protects deposits up to $250,000 per person per institution in case of a bank failure. This applies to term deposits, savings, and transaction accounts at authorised deposit-taking institutions (ADIs). 

If an institution collapses, the government guarantees repayment, typically within seven days. Investors can spread deposits across multiple banks to increase coverage.

2. Tax on Fixed-Income Investments

1. Government Bonds

• Interest is taxed as regular income but exempt from state taxes.
• Selling before maturity may incur Capital Gains Tax (CGT) on any profit.

2. Corporate Bonds

• Interest is taxed at your marginal tax rate (up to 45%).
• Some bonds may provide franking credits, reducing tax liabilities.

3. Term Deposits

• Interest is fully taxed at your marginal tax rate.
• Staggering maturities across financial years can help spread tax liabilities.

4. Money Market Funds

• Returns are taxed as regular income with no CGT discount.

3. Tax Efficiency Tips for 2025

• Use superannuation funds (lower tax rate of 15%).
• Offset gains with deductions to reduce taxable income.
• Consider inflation-linked bonds to maintain purchasing power.

Understanding taxation and regulations ensures investors maximise their after-tax returns and financial security in 2025.

Fixed Income vs Shares: Which One is Right for You?

Conclusion

Fixed-income investments offer stability, predictable income, and lower risk, making them essential to a well-balanced portfolio.

If you’re looking for consistent returns with lower volatility, government bonds, term deposits, and corporate bonds could be a smart choice in 2025. However, shares might be better if higher returns and long-term growth are your priorities.

The key is to align your investment choices with your financial goals and risk tolerance.

Would you like to explore the best fixed-income investments available right now? Speak with a financial adviser or check out the latest bond rates on the ASX.