The strategy To profit from falling interest rates.

How do I do that? You'd think from all the commentary that interest rate movements only affected people with mortgages. But falling rates are also an issue for investors and those with savings. On the face of it, lower interest rates are bad news for savers because they get a lower return on their investment. But, as Aberdeen Asset Management's fixed income product and investment specialist Leanne Bradley points out, there are compensations.

Such as? A falling interest rate environment is where fixed-interest products come into their own. Just as borrowers can lock in a fixed rate loan to protect themselves from further rate rises, investors can take out a fixed rate to protect against further rate cuts.

Many institutions reduced their rates leading up to last week's official rate cut but, says Cannex financial analyst Peter Arnold, you can still lock in a term deposit for six months or one year at an interest rate of 8 per cent.

"There are definitely some good deals to be had," he says. "The top deposits for six months and one year are still paying more than 8 per cent but once you get out to two or three years, [institutions] aren't wanting to commit to higher rates."

Term deposits tend to be secure, though Arnold says you should check how interest is paid before signing up. He says some deposits pay interest monthly but others pay less frequently, which can reduce the effective interest rate (as opposed to the nominal rate, which is usually the one advertised). He says it's also worth checking whether the interest is paid out or compounded, as compounding can also improve your effective rate. Those with more money to invest could consider fixed-rate products such as longer-dated bank bills, debentures and unsecured notes. The notes in particular often provide higher yields, though they may not be as secure.

Bradley says the prospect of further rate cuts also has created an argument for investors to reconsider bonds (and bond funds). Bonds have been out of favour in recent years (thanks to rising interest rates and the credit crunch) but she says they can provide capital gains as well as a solid yield.

How does that work? Unlike term deposits, bonds and other fixed-interest investments can be traded, which means their value fluctuates with interest-rate movements. When interest rates fall, the value of existing fixed-interest investments will rise, as investors are prepared to pay more for the yield on offer. Bradley says a rate cut of one percentage point would typically lead to a three-percentage-point gain in three-year bond prices, all other things being equal.

So with further rate cuts on the horizon, the chances of capital gains are good.

Aberdeen says the attraction of fixed-interest investments has been enhanced by the fallout from the subprime crisis. Its fixed-income portfolio manager, Gavin Goodhand, says the subsequent flight to quality has led to a widening of credit spreads (the extra yield demanded from investments over a "safe" benchmark such as government bonds). Since July last year, he says, high-grade spreads have widened tenfold. This compares with the last credit crunch in 2002, where spreads widened to only half these levels.

"Due to current market conditions, we believe we are seeing once-in-a-lifetime opportunities in the high-grade credit and mortgage-backed securities market and many well-regarded international investors are pointing to Australian residential mortgage-backed securities as the pick of the bunch," Goodhand says.

Many advisers have steered clear on bond funds in recent years but Goodhand says the current market conditions have created a fertile environment for bond managers to outperform.