How to boost returns in a low‑rate world

It’s a funny thing with cash. Despite a cost-of-living squeeze, Australians have been saving more, not less.

Two years ago, household deposits totalled $1.4 trillion. Today, that figure is $1.6 trillion.

It’s a fair bet that decent returns on cash savings are behind part of this uptick.

Bonus savings accounts were paying, on average, 4.9% in mid-2024 – not a bad return for a government-guaranteed investment.

But the party has been steadily coming to an end. By July 2025, the average rate on bonus savers had dropped to 4.25%, and it’s likely to fall further following the RBA’s decision to cut the cash rate in August.

All this is great for borrowers. But not so welcome for Australians who rely on cash deposits as a source of income or to save for a long-term goal like buying a first home.

The good news is that you don’t have to completely step outside your comfort zone to continue earning healthy returns. You may need to dial up risk slightly to fill the gap left by falling rates, but this risk can be managed by maintaining a diversified portfolio.

Let’s break it down. 

One way to tilt a low-risk portfolio towards higher returns is by introducing fixed-income assets to the investment mix.

Government bonds can tick the boxes for low risk, regular returns, portfolio diversification and returns that may be higher than savings accounts. Australia’s 10-year government bond yield is about 4.2% at present, and there’s potential for capital appreciation if interest rates fall.

If you’re happy to ramp up risk, you could add corporate bonds to the mix – these have recorded yields as high as 8.3% over the past year.

While bonds are not an easy asset class for individual investors to access directly, exchange-traded funds (ETFs) offer a low-cost solution. Better still, bond-focused ETFs hold a variety of bonds, providing extra diversification.

Lower interest rates typically favour “growth” assets such as Australian or global shares, often because investors head to these markets looking for higher returns.

Growth investments do carry higher risk though investors can take a cautious approach.

You may choose to invest just a little in growth assets initially and potentially add more over time through dollar cost averaging. Drip-feeding funds into growth assets on a regular basis can smooth out the impact of market highs and lows.

Importantly, shares can also be a source of tax-friendly dividend income. The Australian equity market is well-known for its high dividend yield and the dividend culture of many of our leading companies.

The S&P/ASX 200 High Dividend Index, which measures dividends paid by the top 50 dividend-paying companies, shows investors pocketed a return of 4.7% over the last year from dividends alone.

ETFs can play a role here too, with a selection of ETFs that focus on companies with a track record for strong dividends.

Ultimately, one of the simplest ways to lift returns without taking on significant risk is spreading your money across different investments. This is what a “balanced” portfolio is all about.

Your idea of “balanced” will be very individual. Essentially, though, you can mix and match – still having cash savings, plus a few other investments to help make up for lower returns from falling interest rates.

As an example, InvestSMART's Balanced Portfolio, which notched up returns of 9.09% over the year to the end of July 2025, is made up of:

• 40% fixed interest

• 43% shares (Australian and international)

• 12% cash

• 5% property and infrastructure.

This type of balanced portfolio comes with the risk of possible negative returns in three to four years out of every 20. You may feel this is too high for your comfort levels. That’s fine. It’s all about finding the balance that is right for you in terms of risk and returns.