Recently, several banks in China have lowered deposit interest rates, especially the 1-year fixed deposit rate, which has dropped below 1%, sparking widespread discussion among depositors. This is the seventh rate cut since mid-2022, signaling a significant shift in deposit rates. As bank deposit returns that used to be “guaranteed principal and interest” enter the “1 era,” many depositors are questioning whether it is worth keeping money in the bank, leading to profound implications for bank operations.
On May 20, six major state-owned banks including Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank of China announced cuts to their deposit rates. Following the adjustment, the interest rates for demand deposits at these banks were lowered to 0.05%, and the 1-year fixed deposit rate decreased to 0.95%. Subsequently, a group of joint-stock commercial banks and local small and medium-sized banks swiftly followed suit in reducing rates.
According to a report by “China Economic Weekly” on June 16, this marks the seventh deposit rate cut since mid-2022. With the returns on “guaranteed principal and interest” deposit products entering the “1 era,” many depositors lament that the days of effortlessly “earning interest through fixed deposits” are gone.
Beijing depositor Wang Hong expressed, “Keeping money in the bank no longer generates sufficient interest. When the annualized rate was 4% before, the interest earned on a deposit of 5 million was enough for a family for a year. Now with a 1% annual rate, relying solely on deposit interest is no longer sufficient.”
With deposits losing their appeal, many are left wondering where else to keep their money. Despite the changes, many still find keeping money in banks the safest option. Shanxi depositor Li Li stated her intention to continue depositing money in the bank, emphasizing, “I deposit money in the bank for security purposes.”
There are still many individuals opting to keep money in banks. According to financial statistics from the People’s Bank of China in April, household deposits increased by 7.83 trillion yuan in the first four months of the year.
For some, relying solely on bank deposits no longer meets their financial needs. Wang Hong confessed that a large-sum certificate of deposit he obtained five years ago is about to mature, and he hasn’t decided on what to do with it yet. He said, “I might invest in various wealth management products after maturity, such as daily funds, weekly funds, monthly funds, and so on.”
Many depositors who are feeling restless are turning their attention to the wealth management market.
As interest rates decline, the “comparison effect” becomes more apparent. Many are shifting their focus to insurance products. Insurance broker Lin Nan mentioned that annuities and incremental life insurance products, with their locked-in income functions, have become popular choices for many planning their long-term retirement.
The financial mindset of the younger generation is quietly evolving. Data from Ant Wealth Platform shows that as of the end of April, 9.37 million investors born in the ’90s and ’00s have allocated funds to currency funds, bond funds, and gold funds, commonly referred to as the “new three golds.”
However, whether it’s diving into wealth management, insurance, or betting on the “new three golds,” the risks are higher than bank deposits. For ordinary individuals accustomed to saving steadily, this transition is not easy.
Wang Yifeng, Chief Analyst of Financial Industry at Guotai Junan Securities, mentioned that the concept of the “1 era” and “2 era” of deposit rates mainly represents a psychological barrier.
The downward movement of deposit rates not only affects depositors’ “money bags” but also profoundly impacts the bank’s financial situation. Net interest margin is the difference between the average interest income rate and the interest-bearing liability cost rate of a bank, a critical indicator reflecting the bank’s profitability, has been facing continuous downward pressure in recent years.
Data indicates that the net interest margin of Chinese commercial banks has decreased from 2.1% in 2019 to 1.52% in 2024, with some urban commercial banks falling as low as 1.38%.
Wang Yifeng stated, “For banks, the continued decline in interest rates not only involves deposit rates but also the overall downward trend in the interest rate environment.”
Many ordinary citizens on social media and online forums have expressed concerns about the current economic situation and the security of personal wealth:
A user named “Perception of Chaos” commented: “As the deposit interest rate decreases and the loan interest rate also drops, it indicates an economic downturn with fewer investors. The cost of borrowing for investment is lower, but the market recession makes it harder to earn money.”
Another user, “Moon and Stars Drunk,” expressed: “For an ordinary person, keeping money in the bank is the lowest risk. Ordinary people lack the ability to withstand risks.”
User “Ron Gan” said: “As an ordinary person, bank deposits are still the first choice. Even if the interest is 0, bank deposits are legally protected, while any financial product carries the risk of losing your capital.”