In a rare occurrence in the banking sector, after several regional small banks saw a reversal in deposit interest rates for short and long-term deposits, recently, China’s mainstream banks such as Construction Bank, Industrial and Commercial Bank, China Merchants Bank, and China CITIC Bank have also experienced a reversal in deposit interest rates. Among them, China Merchants Bank’s deposit products have even showcased the phenomenon of “better to deposit for 1 year than for 5 years”.
According to a report by “Guangzhou Daily”, it was found on the apps of banks such as Industrial and Commercial Bank, Construction Bank, and China CITIC Bank, that the interest rates for three-year deposits were lower than those for five-year deposits. For example, Construction Bank offers a 1.9% annual interest rate for a three-year fixed deposit and 1.55% for a five-year deposit; China CITIC Bank offers 1.9% for a three-year fixed deposit and 1.6% for a five-year deposit; Industrial and Commercial Bank offers a 1.85% annual interest rate for a regular three-year fixed deposit and 1.55% for a five-year deposit.
Although Agricultural Bank did not experience a reversal, their three-year fixed deposit annual interest rate is only 1.5%, while the five-year rate is 1.55%.
China Merchants Bank’s fixed deposit terms showing a reversal in interest rates are even more diverse, with a 1.6% annual interest rate for one year, 1.7% for two years, 1.5% for three years, and 1.55% for five years. The annual interest rates for three-year and five-year deposits are lower than those for one or two-year deposits. An industry insider commented, “It is more common to see interest rate reversals between three-year and five-year deposits, but it is indeed rare for the one-year deposit rate to be higher than the five-year rate.”
Normally, the longer the deposit term, the higher the interest rate should be. Some bank officials mentioned that for several large and medium-sized banks that are experiencing a reversal in deposit rates, it is possible that when there is greater pressure to increase deposits, they may adjust short-term deposit rates upwards to attract funds.
Amidst the current downward trend in interest rates and term reversals, if the public does not wisely choose between short and long-term savings, they may end up losing on interest earnings.
Mainland China blogger Mr. Liu expressed that the occurrence of a rare reversal in short and long-term deposit interest rates seen in several decades should alert the public to be more vigilant before depositing money. By comparing interest rates at different time frames for deposits, people should not assume that the longer the term, the higher the interest.
Regarding the reasons behind this, Mr. Liu believes that banks do not want people to keep money in long-term deposits. One important reason is that as loan interest rates decline, whether it is for one year or five years, they are currently decreasing, with the five-year rates dropping even more. Banks, being pragmatic, if loan interest rates decrease, they earn less interest on loans, so can they afford to offer higher interest rates on deposits?
Moreover, Mr. Liu mentioned that the authorities are aiming to revitalize funds in society. The central bank also does not want the public to hoard large amounts of money but rather aims to drive down deposit rates, indirectly encouraging people to save less and consume more, thus indirectly boosting economic growth. Therefore, in the future, whether it’s large banks or small banks, deposit rates may continue to decrease. It is essential for everyone to be cautious when depositing money in the future and avoid losing out on interest.
It is worth mentioning that during the Economic Theme Press Conference of the CCP National People’s Congress held on March 6, the Governor of the People’s Bank of China, Pan Gongsheng, stated that in 2025, they will adjust the reserve ratio and interest rates according to the domestic and international economic and financial situation and the operation of the financial market.