Fixed Term Investments

• Defined investment periods with documented terms
• Capital allocation aligned to investor objectives
• Structured opportunities across a range of terms
• Portfolio laddering across staggered maturities

Fixed-term bonds are debt investments in which an investor provides capital to an issuer for a specified period.

Depending on the structure, the investor may receive interest or coupon payments during the investment term, with the principal scheduled to be repaid at maturity.

Bonds can therefore provide a way of allocating capital toward investments designed around a defined timeframe rather than relying solely on investments whose value fluctuates continuously in public markets.

However, not all bonds carry the same level of risk. The risk profile depends on factors including:

• The identity and financial strength of the issuer
• Whether the bond is secured or unsecured
• The creditworthiness of the borrower
• The maturity date
• The interest rate
• Market conditions
• Liquidity
• The terms governing repayment
• The underlying assets, where applicable

Investors should therefore assess the underlying investment rather than treating all fixed-income investments as equivalent.

ASIC's MoneySmart notes that fixed-interest investments can include government bonds, corporate bonds, debentures and capital notes, with risk varying significantly depending on the particular investment.

Why consider fixed-term bonds?

Fixed-term bonds may be appropriate for investors seeking to:

Important distinction

A fixed-term bond should not automatically be described as a "safe" or "guaranteed" investment.

Unlike an eligible Australian-dollar bank term deposit with an APRA-authorised ADI, a bond is generally not protected by the Financial Claims Scheme merely because it has a fixed maturity or fixed interest rate.

If the issuer experiences financial difficulty or defaults, investors may lose some or all of their capital. That distinction is fundamental when constructing a fixed-term portfolio.

One of the important distinctions between term deposits and bonds is the Financial Claims Scheme.

The Financial Claims Scheme (FCS) is an Australian Government scheme administered by APRA that provides protection for eligible deposits if an authorised deposit-taking institution fails.

For eligible deposits, the FCS protects up to:

The limit applies to the total eligible deposits held by the account holder with that ADI, rather than $250,000 for each individual account. Term deposits are among the deposit products that can be covered.

What does ADI mean?

ADI stands for Authorised Deposit-taking Institution. This includes Australian-incorporated banks, building societies and credit unions authorised by APRA.

The FCS does not apply simply because an investment is called a "deposit". The relevant deposit must be held with an institution and in a product that meets the scheme's requirements.

The $250,000 limit

The $250,000 protection limit is calculated across eligible deposits held by the same account holder with the same ADI. For example:

Subject to the applicable FCS requirements, the full $225,000 in Example 1 would fall within the $250,000 limit. In Example 2, only up to $250,000 would be protected under the FCS. The remaining $50,000 would not be covered by the FCS, although an investor may potentially have a claim through the institution's liquidation process.

The FCS can also apply to eligible deposits held by the trustee of a superannuation fund, including an SMSF.

However, the $250,000 limit generally applies to the fund as an account holder rather than separately to each individual member. This is an important distinction for investors considering term deposits within superannuation.

Accordingly, investors should consider the fund's existing deposits with the relevant ADI before assuming that a new term deposit will receive additional FCS protection.

Investors sometimes hear that holding an investment for more than 12 months provides a "capital gains tax benefit". This requires an important qualification.

The Australian CGT discount generally applies to eligible capital gains, not ordinary interest income.

For an individual or trust, an eligible capital gain may generally receive a 50% CGT discount where the relevant CGT asset has been held for at least 12 months. For a complying superannuation entity, the general discount is one-third.

Example

If the asset satisfies the relevant CGT requirements and has been held for at least 12 months, the individual may generally be eligible to apply the 50% CGT discount. The discounted capital gain of $10,000 is then considered under the investor's applicable tax circumstances.

This does not mean the investor receives $10,000 back from the ATO. Rather, the taxable capital gain may be reduced before applying the investor's applicable tax rate. Capital losses are generally applied before the CGT discount is calculated.

Important: Term Deposits Are Different

Interest income is not the same as a capital gain. A term deposit should not be marketed as receiving a 50% CGT discount simply because it is held for more than 12 months.

Interest earned from bank accounts and term deposits is generally assessable income. The ATO specifically identifies interest from financial institution accounts and term deposits as interest income that must be declared.

This distinction is particularly important when comparing fixed-term deposits with bonds, shares and other investment assets.

Superannuation & Long-Term Investment

For investors using superannuation, the tax treatment can be different from personal investments. A complying superannuation entity can generally access a one-third CGT discount where an eligible CGT asset has been held for at least 12 months.

However, the ultimate tax outcome depends on the investor's circumstances, the superannuation fund's status, the nature of the investment, the investment phase and the applicable tax rules at the time. For this reason, Coyne Holdings positions the 12-month CGT treatment as a potential tax consideration, rather than promising a particular tax outcome.

Choosing an investment term is not simply about selecting the highest advertised rate. Investors should consider:

Before committing capital, investors should consider: