Not that long ago, when interest rates were close to zero and inflation historically low, the idea of a cash ETF as a way of getting ahead of a savings account would have seemed a little far-fetched.
Now, as rates rise and inflation bites, savvy investors are turning to cash exchange traded funds (ETFs) on the ASX, to get a better return on their savings and beat the returns offered by a typical bank account.
What is a cash ETF?
Cash ETFs are securities traded on the ASX that provide exposure to Australian cash deposits.
The ETF invests in cash products and deposit accounts that are offered by reputable banks with distributions (i.e. interest payments) that are typically paid out on a monthly basis.
Cash ETFs allow investors to access a competitive interest rate compared to a typical bank savings account, as ETF issuers are able to leverage their size to negotiate a higher interest with the banks than individuals may be able to achieve themselves.
The benefits of a cash ETF
Cash ETFs can pay more than regular savings accounts. Interest rate hikes are also passed on much quicker to cash ETF investors as opposed to those parking their money in a regular bank account.
Owning a cash ETF removes any need to open or maintain a bank account. You can invest in a cash ETF via a normal ASX trading account and there is no need to maintain minimum top ups, purchase conditions, or have your money locked up in a term deposit vs a high interest savings account where these conditions may be present.
The great thing about the cash ETF structure is that it is fully tradable on the ASX. This means there are no penalties for buying/selling the securities, other than paying regular brokerage costs.
Which is the best cash ETF in Australia?
Stockspot comparison
Following the success of our 2023 Stockspot ETF Report, we are comparing cash ETFs available on the ASX, to help you pick the best cash ETF to invest in.
In this article, we road test the best cash ETFs in Australia across a range of different metrics.
There are three Australian ETFs available for investors to gain exposure to high interest cash:
- BetaShares Australian High Interest Cash ETF (ASX: AAA)
- iShares Core Cash ETF (ASX: BILL)
- iShares Enhanced Cash ETF (ASX: ISEC)
We compare these cash ETFs across 6 factors:
- Size
- Costs and slippage
- Liquidity
- Performance and track record
- Interest rate and yield
- Exposure and holdings
Size
AAA is by far the largest cash ETF available, managing just over $3.5 billion for investors. AAA has had the first mover advantage, having listed in March 2012. BILL and ISEC were listed in June 2017 and currently manage $682 million and $248 million respectively.
Costs and slippage
BILL has the lowest costs with an annual fee of 0.07%. ISEC is more expensive, charging 0.12% per year. AAA is the most expensive cash ETF in the market charging 0.18% per year. BILL has the tightest spreads (i.e. lowest slippage), while AAA has large transactional volume and superior liquidity.
| TICKER CODE | MANAGEMENT FEE | BUY/SELL SPREADS (SLIPPAGE) |
| AAA | 0.18% | 0.02% |
| BILL | 0.07% | 0.02% |
| ISEC | 0.12% | 0.02% |
Liquidity
AAA is the most liquid cash ETF, trading around $17 million daily and is one of the most liquid ETFs in the entire Australian market.
BILL and ISEC have limited relative liquidity and trade daily around $1.8 million and $0.6million per day respectively.
ISEC has been the best-performing cash ETF over the short term, only marginally outperforming AAA and BILL over a 1 year period. AAA and ISEC both returned 2.0% over a five year period. AAA has always beaten its benchmark target, the 30 Day Bank Bill Swap Rate (BBSW), after fees and expenses.
BILL and ISEC hold more near-term and liquid cash instruments than AAA.
| ASX CODE | 1-YEAR TOTAL RETURN | 3-YEAR TOTAL RETURN (P.A.) | 5-YEAR TOTAL RETURN (P.A.) | ETF inception date | Index/Benchmark strategy |
| AAA | 4.5% | 3.0% | 2.0% | 6 March 2012 | Outperform the 30 Day Bank Bill Swap Rate (BBSW) |
| BILL | 4.5% | 2.9% | 1.8% | 2 June 2017 | Track the S&P/ASX Bank Bill Index |
| ISEC | 4.6% | 3.0% | 2.0% | 2 June 2017 | Outperform the S&P/ASX Bank Bill Index |
Other cash ETFs have launched and subsequently closed down as they struggled to gain much traction compared to the likes of AAA, BILL and ISEC.
This included the UBS IQ Cash ETF (MONY), the Pinnacle aShares Dynamic Cash Fund (Managed Fund) (Z3RO) and eInvest Cash Booster Fund (managed fund) (ECAS).
In October 2023 Betashares launched their managed fund cash ETF ASX: MMKT. The MMKT ETF Betashares Australian Cash Plus Fund (managed fund) aims to generate a yield (before fees and expenses) that exceeds the Bloomberg AusBond Bank Bill Index (benchmark), and currently has amassed $0.2 million in FUM. The ETF charges a higher management fee, matching that of AAA (0.18%), some 0.11% more than BILL and 0.06% more than ISEC. Due to the infancy of this ETF there is no 1 year returns data currently available.
Interest rate and yield
All cash ETFs listed on the ASX pay distributions on a monthly basis. They are all very similar, sitting at around 4.5% p.a..
| ASX CODE | Interest rate per year* | Distribution frequency |
| AAA | 4.4% | Monthly |
| BILL | 4.4% | Monthly |
| ISEC | 4.4% | Monthly |
The interest paid on cash ETFs is typically better than the Reserve Bank of Australia (RBA) cash rate of 4.35% (as at 24 September 2024). Keep in mind that the interest rate on cash ETFs changes when the RBA announces interest rate changes.
Despite all ETFs being grouped as a cash ETF, their underlying strategies and holdings may differ.
AAA invests in three primary cash instruments:
- At-call bank deposits – these do not have maturity dates and can be accessed any time.
- Notice deposits – these have maturity lock-up periods of between 31-90 days.
- Term deposits – these have a maturity of up to 90 days.
BetaShares picks from a panel of APRA-regulated banks such as NAB, Bendigo, BOQ, JP Morgan, RaboBank and Citibank. BetaShares then negotiates with these banks on getting a better rate given its size and bargaining power.
AAA invests in cash securities with lock-up periods, meaning it can provide better interest rates. Importantly, AAA can hold no more than 30% of the portfolio in cash deposits with greater than 31 days maturity.
BILL invests in three primary cash instruments:
- At-call bank deposits.
- Negotiable certificates of deposit (NCD) – typically purchased by institutional investors where you need a minimum of $100,000.
- Commonwealth/state government securities – e.g. commercial paper and treasury notes.
BILL differs from AAA in that it only holds instruments that can be sold on the same day. BILL does not invest in term deposits and uses a whole panel of banks including RBC, Suncorp, ING and Westpac.
ISEC is slightly different to AAA and BILL as it looks to get a higher interest rate by investing in more than just cash instruments.
For example, ISEC invests in higher yielding securities like floating rate notes and commercial paper.
These instruments may have longer maturities and lower credit quality than traditional high-grade government bonds or cash, which increases the volatility of the product. ISEC can hold up to 20% in non-cash items such as floating rate notes.
Note: all these cash ETFs do not enjoy the Australian Government’s safeguard guarantee on retail bank deposits up to AUD 250,000 for ETF investors.
Verdict
Stockspot’s preferred cash ETF is the BetaShares Australian High Interest Cash ETF (ASX: AAA).
It is the largest in size with the longest track record and has demonstrated good long-term performance.
While it may hold less liquid instruments than BILL, its size, superior liquidity and higher interest rate compensates investors for this.
AAA is a great savings investment vehicle to ensure your money is staying ahead of the RBA cash rate, and it has consistently done so since launching in 2012.
AAA is the ETF we use for our Stockspot Savings product which we don’t charge any management fees on.
Stockspot regularly monitors the ETFs available on the ASX for Australian investors. If you’re confused by which ETFs you should have in your portfolio, or simply want a hands off approach to investing, learn more about our Stockspot portfolios, expertly managed for you.
