The number that actually matters
When a term deposit advertises a rate, that's the nominal return — the number before inflation and tax. What matters for your future spending is the real return: what's left once prices have risen and the tax office has had its share.
If cash earns [RATE] and inflation runs near the Reserve Bank's 2–3% target band, the gap is thin before tax. At a marginal tax rate, that gap can disappear entirely.
Cash rarely loses money on the statement. It loses purchasing power quietly, and that's much harder to notice.
Reinvestment drag: the part people miss
A term deposit locks a rate for a set period — often 12 months. When it matures, you reinvest at whatever the rate is then. Today's attractive rate is a snapshot, not a decade-long promise.
This is reinvestment drag: you're repeatedly rolling over short-term money with no control over the rate you'll be offered next. Long-term goals get funded by short-term guesses.
2–3%
The Reserve Bank of Australia's inflation target band — the hurdle your cash has to clear
What cash is genuinely good for
| Time horizon | What cash does well | The risk of using cash |
|---|---|---|
| 0–2 years | Certainty for known expenses | Very low — this is cash's job |
| 3–5 years | Reduces short-term bumpiness | Some loss of purchasing power |
| 6–10 years | Little advantage | Meaningful erosion after inflation |
| 10+ years | Rarely appropriate alone | Real spending power falls behind |
A practical way to think about it
We usually separate your money by when you'll spend it. Near-term spending and your emergency buffer sit in cash, where certainty is worth paying for. Money for the decade ahead is invested, where growth has time to work.
That split means you're never forced to sell growth assets at the wrong moment — which is the real reason to hold cash, rather than the interest rate on offer.