The current interest rates on term deposits offered by Commonwealth Bank of Australia (ASX: CBA) are 1.7% to 1.8% per annum for 60-month terms.
This is largely in line with what is being offered by the rest of the big four banks and is barely better than inflation.
In light of these low rates, I think income investors ought to consider replacing their term deposits with dividend shares in order to generate superior returns.
Three top dividend shares I would buy are listed below:
National Storage REIT (ASX: NSR)
National Storage is one of the leading self-storage operators in the ANZ region. It has successfully grown its network, income, and distribution at solid rate over the last few years thanks to its growth through acquisition strategy in a highly fragmented market. This is expected to continue in FY 2020, with management forecasting earnings per share growth of at least 4%. Based on this forecast, I estimate that its shares provide a forward 5.7% distribution yield.
Rural Funds Group (ASX: RFF)
Another great option for income investors could be this agriculture-focused property group. I think it has a number of qualities that make it a great term deposit replacement, including its long leases, quality assets, and positive rental income growth potential. Overall, I believe it is well-positioned to grow its distribution at a solid rate over the next decade. This year Rural Funds intends to pay a distribution of 10.43 cents per share, which equates to a yield of 4.6%.
Transurban Group (ASX: TCL)
A final option to replace your term deposit with is Transurban. The toll road giant is regarded as a bond proxy due to the way it has generated consistent distribution growth over the last decade. The good news is that I don't expect this to change over the next decade thanks to the growing number of vehicles on its roads and periodic toll prices. At present Transurban's shares offer a trailing distribution yield of 4%.
