ARC Capital Ventures Compares Corporate Bonds vs. Term Deposits: Which Offers Better Yield in 2025?

For decades, term deposits have been a favourite among Australian retirees and conservative investors, offering perceived safety, capital stability, and predictable interest income. But in 2025, with interest rates plateauing and inflation eroding real returns, more sophisticated investors are asking: Is there a better way to generate stable income without taking on excessive risk?

At ARC Capital Ventures, we’ve seen a notable shift in investor preferences, with growing interest in investment-grade corporate bonds—especially from high-quality issuers like Mercedes-Benz North America. In this article, we compare these two income strategies, analysing yield, risk, and portfolio impact to help investors make an informed choice.

Term Deposit Popularity: Familiar, but Falling Behind

Term deposits have long been a staple of income investing in Australia. Their appeal lies in their simplicity—fixed interest for a fixed period, typically between 3 months and 5 years.

However, according to ARC Capital’s analyst data, the average 12-month term deposit rate across Australia's Big 4 banks sits between 4.5% and 5.2% p.a. in mid-2025. While still positive, these rates have started to lag behind inflation-adjusted returns and other low-risk alternatives.

“Many Australian investors are starting to realise that while term deposits offer safety, they may not be delivering the yield required to fund a comfortable retirement,” says Marios Anastasiou, CEO of ARC Capital Venture.

Case Study: Mercedes-Benz North America Bond vs. 12-Month Term Deposit

One standout bond currently on ARC Capital’s fixed income desk is a Mercedes-Benz North America corporate bond—a short to mid-term note offering a fixed annual coupon of 6.85%.

Mercedes-Benz North America is the financial services arm of the globally recognised automotive leader. Backed by a strong balance sheet and consistent cash flow from vehicle financing, its corporate bonds are investment-grade rated and have attracted increasing demand from Australian high-net-worth and SMSF investors.

While term deposits offer shorter duration and guaranteed capital protection under the Financial Claims Scheme (FCS), the Mercedes-Benz bond provides nearly 2% higher yield, with moderate duration and solid creditworthiness.

Yield Comparison: The Numbers That Matter

ARC Capital’s fixed income analysts report that investment-grade corporate bonds issued by multinational firms are currently yielding between 6.0% and 7.5%, depending on term and currency denomination.

In contrast, term deposits have failed to rise in lockstep with corporate credit markets, with banks limiting retail deposit interest even as broader bond yields surge.

“For investors aiming to preserve capital while enhancing income, investment-grade bonds are delivering stronger net returns than term deposits, especially when laddered or used in a blended portfolio,” says Anastasiou.

Risk and Liquidity: What Investors Need to Know

Of course, comparing bonds and term deposits isn’t apples to apples. Each product has unique characteristics:

• Term deposits are backed by the Australian government (up to $250,000 per institution), making them nearly risk-free in terms of capital preservation.
• Corporate bonds, while not government-backed, offer transparency via ratings (e.g. BBB+ or higher) and come with fixed payouts over time.

When it comes to liquidity:

• Term deposits are illiquid for the full term, with early withdrawal penalties.
• Corporate bonds, on the other hand, can be sold on the secondary market, providing greater flexibility—though at market value, not necessarily at par.

ARC Capital’s advisors help clients understand these dynamics, building portfolios that balance yield and liquidity across durations.

Why Sophisticated Investors Are Shifting to Bonds

In 2025, fixed income markets are rewarding informed investors. As rates stabilise, those who lock in medium-duration investment-grade bonds stand to generate consistent income above inflation.

For example:

• Mercedes-Benz, American Express, and AXA bonds are offering coupon rates between 6.25% and 7.0%.
• These compare favourably to both term deposits and dividend yields from the ASX 200, which currently average just over 4%.

ARC Capital’s analyst desk has observed a 27% increase in client bond allocations year-to-date, particularly within SMSFs and retirement-focused portfolios.

“Sophisticated investors are looking beyond traditional savings accounts and towards institutional-grade fixed income that delivers real yield. The bond market offers tools that were once exclusive to large asset managers—now made accessible by ARC,” notes Anastasiou.

Final Takeaway: Matching Yield With Your Risk Appetite

Term deposits still have a place in portfolio construction—particularly for very risk-averse or short-term liquidity needs. But for those with a longer horizon, moderate risk tolerance, and yield goals above inflation, corporate bonds are becoming the smart alternative.

At ARC Capital, our advisors help investors:

• Compare bond and term deposit yields
• Assess credit risk and ratings
• Build layered income portfolios using diversified issuers across sectors

Want to Compare the Latest Yields?

Access the full breakdown in our free ARC Capital Fixed Income Yield Report, updated monthly with top bond opportunities across sectors like automotive finance, banking, insurance, and sovereign debt.

Download the ARC Fixed Income Yield Report Now

Tags ARC Capital Venture Australian bond market bond investing bond market corporate bonds fixed income investments fixed income investments Australia fixed term deposits fixed-income investments term deposits