Summary of Key Points
Five-year fixed deposits, which had been dormant for several months, have recently returned to the market. Three major state-owned banks—Bank of China (BOC), Agricultural Bank of China (ABC), and China Construction Bank (CCB)—along with smaller banks such as Huaxia Bank and Minsheng Bank, have successively launched related products. The interest rates range from 1.55% to 1.8%, and these deposits offer flexible options such as transferability and early withdrawal. Banks are taking this action mainly to address the pressure of customers moving their deposits elsewhere and to optimize their liability structures. However, this does not indicate a rebound in interest rates, and the impact on the financial products market is limited.
1. Which banks are issuing these five-year fixed deposits? What do they look like?
- Leading by state-owned banks: BOC was the first to offer them on July 1st, with a minimum deposit of 200,000 yuan and an annual interest rate of up to 1.6% (the quota quickly ran out). ABC followed on July 8th with the same requirements but only available offline. CCB introduced two options on July 10th, with interest rates of 1.55% and 1.6%.
- Smaller banks are also participating: Huaxia Bank offers a five-year deposit with an annual interest rate of 1.75% for deposits of 200,000 yuan and 1.8% for deposits of 1 million yuan. Minsheng Bank offers different types of deposits (standard, platinum, and private banking) with interest rates ranging from 1.75% to 1.79% (higher than those of the larger banks).
- Flexibility: The central bank has recently revised the rules, allowing fixed deposits to be transferred between banks or through third-party platforms and withdrawn in advance, making them more flexible than regular fixed deposits (no need to wait until the five-year term expires if you need the money urgently).
2. Why have banks suddenly restarted issuing five-year fixed deposits?
There are three main reasons:
1. Retaining maturing deposits: High-interest three-year fixed deposits issued by banks in 2022-2023 (for example, ICBC’s 3.35% rate for 300,000 yuan deposits) are now coming to maturity. Banks are issuing five-year deposits to lock in this funds.
2. Optimizing the capital structure: Some banks, especially those with significant overseas business, need long-term funds to match their long-term loans (to avoid the risk of borrowing short-term money for long-term investments). Smaller banks may be doing this to meet quarterly performance targets by offering higher interest rates to attract deposits.
3. Reducing interest rate pressure: Banks’ net interest margins (the difference between the interest they earn and the cost of funds) are at historical lows. Locking in five-year funds at around 1.6% now can help reduce future costs if interest rates continue to decline.
3. Is this a sign of a rebound in interest rates? Experts say no!
Definitely not: The reasons are clear:
- It’s not a industry trend: This is a decision made by individual banks; not all banks are participating. Large banks already have very low net interest margins (around 1.4%). If they all started issuing five-year deposits, they would pay more in interest and earn less, so they won’t adopt this practice widely.
- The downward trend in interest rates continues: Experts point out that this is just a temporary phenomenon, and supply will remain limited. Only some smaller banks may be forced to issue them to prevent losing customers to larger banks.
- The flow of funds reveals the truth: Resident deposits increased by only 3 trillion yuan in the first half of the year, while non-bank financial institutions saw an increase of 4.65 trillion yuan. This suggests that people are not spending their money but instead moving it from fixed deposits to financial products and funds, which then flow back to banks in other forms, indicating a search for higher returns. Therefore, there is no basis for an interest rate rebound.
4. What is the impact on the financial products market?
The impact is limited:
- Limited effect: Five-year fixed deposits may attract some investors from financial products, but the overall impact is small.
- Competitive advantages: While the yield on five-year fixed deposits is slightly higher than some low-risk financial products, their flexibility (transferability) is an attractive feature for those seeking stability and security.
- Diversification of financial products remains: The market offers a variety of products, including stocks, bonds, and hybrids. Investors tend to diversify their investments and will not put all their money into five-year fixed deposits.
- Experts’ opinion: The financial products market will continue to be diversified, with five-year fixed deposits serving as an additional option, but they will not challenge the dominance of other types of financial products.
In summary, the return of five-year fixed deposits is a temporary measure by banks to retain deposits, not a sign of a reversal in interest rates. Investors can consider them based on their needs, but there’s no need for excessive interpretation or following the trend.