Summary of Key Points
Shanghai Songjiang Fuming Rural Bank has adjusted its deposit interest rates, setting all 1-year, 2-year, and 3-year fixed-term deposits at 1.65% – for the first time in the industry, all rates have been unified. This move is due to the bank's increasing pressure on its net interest margin (the difference between the interest it earns from lending and the interest it pays on deposits), which has narrowed. By lowering the rates for long-term deposits, the bank is effectively encouraging customers to avoid these higher-cost options. This extreme situation represents an escalation of the previous trend of inverted interest rates (where long-term rates were lower than short-term rates). In the future, it is likely that more small and medium-sized banks will continue to reduce their deposit rates.
1. “Unified Interest Rates”: Is it the same to deposit for 1 year or 3 years?
With the new rate adjustment, whether you deposit 10,000 yuan for 1 year, 2 years, or 3 years, you will earn an annual interest of 165 yuan (10,000 × 1.65%). For example, a 3-year deposit would earn a total of 495 yuan in interest, which is the same as if you deposited the same amount for 1 year and then renewed it annually (assuming the rate remains unchanged). This breaks the common belief that longer deposits offer higher returns; previously, the interest rate for a 3-year deposit was definitely higher than that for a 1-year deposit.
2. Why are banks doing this?
Banks primarily earn money through the difference between the interest they charge on loans and the interest they pay on deposits (this is known as the net interest margin). In recent years, loan interest rates have been declining (for instance, the LPR for mortgages has decreased), but if deposit interest rates do not decrease as well, bank profits will be squeezed. Long-term deposits pose a greater risk for banks because if interest rates continue to fall in the future, the bank will have to pay higher interest rates to its customers for several years, increasing its costs. By lowering long-term deposit rates to match short-term rates, banks aim to discourage customers from choosing long-term deposits and thereby reduce their future interest expenses and alleviate profit pressure.
3. This is not the first time: Inverted Interest Rates Have Occurred Before
The current unified rate policy is actually an escalation of previous trends of inverted interest rates. Examples include:
- China Merchants Bank’s “Lingdong Cun” deposit product, with a 1-year rate of 1.6% and a 5-year rate of 1.55% (meaning a 5-year deposit would result in a lower return than a 1-year deposit);
- Xinjiang Korla Fuming Rural Bank, with a 1-year rate of 2% and a 5-year rate of 1.95%;
- Wuhua Huimin Rural Bank, where the 2-year rate was lower than the 1-year rate, and the 5-year rate was lower than the 3-year rate.
These are all examples of banks using various strategies to discourage long-term deposits, with the ultimate goal of reducing the cost associated with these higher-risk investments.
4. Future Interest Rate Trends: More Small and Medium-Sized Banks Will Lower Rates
Although the net interest margin for banks slightly improved in the second quarter of this year, the pressure remains high in the second half of the year:
- Small and medium-sized banks rely on higher deposit rates to attract customers compared to larger banks;
- Loan interest rates are continuing to decline, and if deposit rates do not decrease as well, their profits will further shrink.
Therefore, it is expected that more small and medium-sized banks will lower their deposit rates in the second half of the year, potentially leading to even more instances of unified or inverted interest rates.
5. Implications for Ordinary Depositors:
- Long-term deposits are no longer as profitable: With the same interest rate for 3-year and 1-year deposits, it is more advantageous to choose shorter terms (e.g., 1-year deposits) for greater flexibility and no loss of interest.
- Compare rates carefully: Some small and medium-sized banks may offer relatively higher short-term rates (e.g., 1.65% compared to larger banks’ rates). However, note that deposits up to 500,000 yuan are protected by deposit insurance, so safety is not a concern.
- Consider other investment options: For higher returns, you could consider money market funds (such as Yu’ebao), government bonds, or more stable financial products, but be aware of the associated risks (which are generally higher than those of deposits).
In summary, the era of higher returns on longer-term bank deposits is over. Depositors need to be more flexible in choosing their deposit terms and consider their options carefully based on current interest rates.