Superannuation fund members are maintaining high allocations to term deposits, and the recent decline in interest rates isn't expected to reverse this trend given the volatility in share markets.

However, some specialists warn that investors may not be reducing risks as much as they think.

Scott Tully, Head of Investment Services at Colonial First State, said there was strong demand for term deposits from super fund members across the fund manager's platforms.

"We are definitely seeing substantial support for term deposits that we have on our various platforms, and that's a perfectly rational decision by investors given the volatility we're seeing in share markets.

"Whether this trend continues will depend on equity markets. It could turn around if we see any sustained improvements in equity markets."

Part of the appeal of term deposits are relatively high rates of return compared to other cash products.

The Reserve Bank of Australia (RBA) recently noted that competition for term deposits has remained strong in 2012, with the average interest rate on the major banks' at-call deposits rising slightly relative to the cash rate.

"The spread of term deposit 'specials' to equivalent duration market rates has fallen slightly, but remains very high by historical standards.

Households, businesses, and superannuation and managed funds continue to take advantage of the high term deposit rates," the RBA said in its recent Statement on Monetary Policy.

Shane Oliver, head of investment strategy at AMP, said superannuation funds are now allocating about 14 per cent of their assets to cash, compared to between 6 and 8 per cent between the late 1980s to late 2007.

In addition to super members de-risking their investments, the growth of self-managed superannuation funds (SMSF) has also boosted the flow to cash.

"SMSFs tend to have a shorter-term investment horizon and react to events in markets and as equity markets have been very volatile, they tend to allocate more to term deposits and cash, which is indicative of retail investors generally, than traditional super funds that have a longer-term investment focus."

Clive Smith, fixed income portfolio manager at Russell Investments, said he expected term deposits rates to remain relatively attractive, notwithstanding the fall in the cash rate.

Deposits were an important part of the big banks funding, and banks would continue to build up their deposit funding base given the expense of offshore funding, he said.

"While term deposit margins have started to come down, they won't go to where they were before the GFC, when they were paying materially less than other types of fixed-interest investments, such as bank-accepted bills."

However, investors need to look at their portfolios as a whole when analysing risk, he said.

"A lot of investors look at [the] risk of term deposits in isolation and in terms of their absolutely low level of risk. At Russell Investments, what we say [is] investors need to think about their total portfolio. 

"Other types of investments can give you a more effective risk-reduction, depending on an investor's portfolio objectives and outcomes. Certain bonds, for example, such as those with longer duration or relatively low credit risk, may have a negative correlation to other asset classes such as equities, more than short-term duration term deposits.

"So it's important for investors to consider their total portfolio when making investment decisions."