After the People’s Bank of China lowered the LPR, on July 25, China’s five major state-owned banks lowered their deposit benchmark interest rates. The benchmark rates for three-month, six-month, and one-year fixed-term deposits were all cut by 10 basis points, while the rates for two-year, three-year, and five-year fixed-term deposits were lowered by 20 basis points. Mainland Chinese citizens believe the significant rate cut reflects the immense pressure on banks’ operations and the insufficient domestic demand in China.
On July 25, the five major state-owned banks in China – Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications – collectively reduced their deposit benchmark interest rates. The benchmark rate for demand deposits was lowered by 5 basis points, from 0.20% to 0.15%. The benchmark rates for three-month, six-month, and one-year fixed-term deposits were all cut by 10 basis points to 1.05%, 1.25%, and 1.35%, respectively; while the rates for two-year, three-year, and five-year fixed-term deposits were lowered by 20 basis points to 1.45%, 1.75%, and 1.8%.
In addition, according to the official website of Agricultural Bank of China, the agreed deposit rate was lowered from 0.7% to 0.6%. The rates for one-day and seven-day notice deposits were reduced from 0.25% and 0.8% to 0.15% and 0.7%, respectively.
The news of the five major state-owned banks lowering their deposit benchmark interest rates became a hot topic on social media. Netizens mocked the situation, saying, “I don’t have money anyway, so go ahead and lower the interest rates as much as you want.”
Chinese blogger “Zhiku Lin” stated that the rate cuts this time are quite significant, especially the 20 basis points reduction for two-year and longer-term fixed deposits. People are feeling sorry for their shrinking pockets as the People’s Bank of China recently lowered the LPR (Loan Prime Rate), leading to a decrease in deposit interest rates as well. People’s money in banks is becoming less valuable. Everyone has to adjust their mindset, hold onto their money tightly, and learn to find opportunities amidst the changes.
Blogger “Invincible History” commented that the continuous reduction of deposit interest rates by the five major banks means that for those who want to earn higher interests, they must choose deposit terms ranging from ten to twenty years.
As for why the five major banks uniformly lowered their rates, he mentioned that the main reason is to stimulate the economy. However, he added, “We all know that people have been struggling to make ends meet over the past two years. Even if they have money, they are not likely to invest randomly, especially considering the current poor state of the real economy, and stocks and lotteries are even more unpredictable. Everyone needs to be cautious.”
Netizen “adb6b4d” expressed, “The forceful reduction of deposit interest rates and the slight increase in loan rates are aimed at maximizing the interest rate spread.”
In recent times, small and medium banks in Yunnan, Guangxi, and other regions have proactively lowered their deposit rates, with reductions ranging from 5 to 40 basis points. Since June last year, state-owned banks have reduced deposit rates four times, with the highest decrease being 70 basis points. The era of “1% deposit rate” for five-year deposits has begun.
Despite the major banks frequently lowering their deposit rates, there has been a lack of synchronized reduction in loan rates.
Financial writer “Zhujiang Lecture Hall” analyzed that the primary reason behind this trend is the urgent need for banks to lower their operational costs. Messages about salary cuts and layoffs in the banking sector have been circulating this year. China Construction Bank headquarters cut salaries by 10%, while many joint-stock banks were rumored to have slashed salaries by more than 40-50%, indicating substantial underlying operational struggles.
He further noted the lackluster domestic demand as a significant factor. Guangdong, known as a consumption powerhouse, only saw a meager 1.2% increase in total social retail sales in the first half of this year, sharply down from the 5.8% growth for the entire year last year. Such a drastic decline is truly alarming.
Over the past two years, there has been widespread discussion on social platforms about how much money one needs to have in the bank to live comfortably without working. People are saving more and spending less, focusing solely on earning interest from their deposits. This raises concerns about the future of the economy.
According to “Zhujiang Lecture Hall,” the authorities are trying to discourage the trend of hoarding savings without spending, which is why the deposit rates have been lowered significantly. However, the question remains: Will people increase their spending?
With the continuous decline in deposit rates, more and more depositors are exploring where they can find higher rates. The concept of “deposit commandos” (depositing money across different regions for better rates) has gained popularity in recent years.
Due to the interest rate differentials between state-owned, joint-stock, and small banks, these “deposit commandos” are opening accounts and depositing money in branches located in cities where the interest rates are higher, even if it means moving from one city to another.
Many individuals have shared their experiences of acting as “deposit commandos” on social media. Some have traveled across multiple cities to find banks offering a 3.0% interest rate, while others have embarked on long journeys just to earn an extra ten thousand yuan in interest within a day. There are even those who stay up all night to secure big deposit deals.
On social media, people are asking questions like, “Are there still deposit rates above 3% in Beijing?”
A user claiming to be a foreign bank customer relationship manager stated that the bank’s USD fixed deposit rate is as high as 5.4%.
According to the data compiled by PY Standard, as of July 14, the average annualized return on USD wealth management products in the market this year was 4.33%. Joint-stock bank wealth management subsidiaries had the highest average annualized returns for USD products at 5.20%, followed by state-owned bank wealth management subsidiaries at 4.91%. Even the less performing wealth management subsidiaries of joint-stock banks offered a 3.64% return on USD products.
However, as reported by Interface News, bank officials have warned that wealth management products do not guarantee principal nor interest, and investors need to consider exchange rates and spreads when purchasing USD or other foreign currency products, as a drop in exchange rates could lead to double losses.